Costing Formulas

Question 1

What are the 4 main variances for “Direct Materials and Direct Labor?”

Answer 1

PURE

Direct Materials PRICE Variance
Direct Materials USAGE Variance

Direct Labor RATE Variance
Direct Labor EFFICIENCY Variance

Question 2

Formula for DM Price variance

Answer 2

DMPV = Act Qty purchased X (Std P - Act P)

Remember:

• what’s the main focus of the formula is what is in ( )
• can it be controlled or not in the production facility determines whether Actual or Standard for outside of ( )

Question 3

Formula for Direct Materials USAGE Variance

Answer 3

DMUV = Std cost x (Std qty - Act qty)

Question 4

Formula for Direct Labor RATE Variance

Answer 4

DLRV = Act hours x (std rate - act rate)

Question 5

Formula for Direct Labor EFFICIENCY Variance

Answer 5

DLEV = Std rate x (Std hrs - Act hrs)

Question 6

What are the 4 main OVERHEAD Variances

Answer 6

OH applied variance
OH spending variance
OH efficiency variance
OH production volume variance

Question 7

Formula for Overhead APPLIED Variance

Answer 7

OHAV = Std Direct Labor Hrs x. Predetermined OH Rate

Question 8

Formula Overhead SPENDING Variance

Answer 8

OSV =
(Actual Dir Labor Hrs. X Pred. Var OH Rate + Budget Fix OH)
- Actual OH

Question 9

Formula Overhead EFFICIENCY Variance

Answer 9

Measures units mfg. required more/less than number of hours expected
OEV = PVOHR x (SDLH - ADLH)

Question 10

Formula Overhead PRODUCTION Volume Variance

Answer 10

• mfg. dept. has the LEAST control
• measures company produced as many units as expected

OPVV = (SDLH x PDFOHR) - Budgeted Fixed OH

Question 11

Formula for Economic Order Quantity

Answer 11

EOQ = Square root of 2AD/K

A = Annual unit demand
D = Cost per order (variable cost)
K = Cost of carrying one unit per year

Annual Demand = A = 100,000 Units (Given)
Cost per Order = D = $35 (Variable Cost Only, Ignore Allocation
of Fixed Cost)

Carrying Cost/Unit/Year = K = Handling Costs + Interest
Handling Cost = 20% of Cost (Given) = (.2) ($12) = $2.40
Interest (Capital Cost) = 15% (Given) of Cost (Given) =
(.15) ($12) = $1.80

Carrying Cost = K = $2.40 + $1.80 = $4.20
EOQ = Sq. Root of 2AD/K = Sq. Root of ((2 x 100,000 x $35)/$4.20)
EOQ = Sq. Root of 7,000,000/4.20
EOQ = Sq. Root of 1,666,666
EOQ = 1,291