standard costing and variance analysis Flashcards
General format of a performance report
revenue or cost budget amount actual amount variance explanation
what is variance a account
difference between standard costs and and actual costs
types of overhead
variable overhead and fixed overhead
when is variance favorable
actual costs < budgeted costs
actual revenues > budgeted revenues
when is variance unfavorable
actual costs > budgeted costs
actual revenues < budgeted revenues
what is flexible budget
budget that shows revenues and expenses that should have occurred riven the actual activity level
what do we need to know to flex a budget
variable costs change in direct proportion to changes in activity
fixed costs remain unchanged
what is the basic idea of variance analysis
we can split up the overall difference between standard costs and actual costs in variances that are interpretable and meaningful
types of standard cost variance
price variance and quantity variance
what’s price variance
the difference between the actual price and the standard price
quantity variance
the difference between the actual quantity and the standard quantity
what’s standard price
amount that should have been paid for the resources acquired
standard quantity
standard quantity is the quantity that should have been used for the output achieved
formula for price variance
AQ(AP-SP)
quantity variance
SP(AQ-SQ)
what’s journal entry for recording the purchase of materials (taking into accounts variance)
dr direct material
cr accounts payable
cr price variance on direct materials
if more was spent than the standard
Actual hours (SP-AP)
what’s rate variance
what’s efficiency variance
SP(SH-AH)
what is POHR typical based on
input activity measure
e.g. machine hours, direct labor hours, euros
what’s variable overhead spending
AH(standard rate - actual rate)
what’s efficiency variable
standard rate(SH-AH)
what’s the journal entry to record actual variable overhead cost
dr variable manufacturing overhead cost
cr. accounts payable
what’s the journal entry to record the application of variable manufacturing overhead
dr work in process
cr variable manufacturing overhead applied
what’s the journal entry to isolate variable overhead variances for the period
dr variable manufacturing overhead applied
spending variance on bar. mnf. overhead
cr variable manufacturing overhead incurred
efficiency variable on var, mnf
what does the variance overhead efficiency variance reveal?
favorable variable overhead efficiency variance indicates that we used more direct labor hours than standard given actual output
therefore, we should expect higher overhead costs
types of fixed overhead variances
fixed overhead budget and volume
what does fixed overhead budget indicate
how much more or less we spent on fixed overhead than budgeted
what does fixed overhead volume variance indicate
difference between the budgeted overhead and the overhead allocated to products
how do you calculate fixed overhead budget variance
actual fixed overhead - budgeted fixed overhead
how do you calculate fixed overhead volume variance
budgeted fixed overhead - applied fixed overhead
how do you calculate applied fixed overhead
POHR x standard units of activity measure given actual output
what’s the journal entry to record actual fixed manufacturing overhead costs
dr fixed manufacturing overhead cost
cr cash
what’s the journal entry to record the application of fixed manufacturing overhead to work-in process
dr work in process
cr. fixed manufacturing overhead applied
what’s the journal entry to isolate fixed overhead variances for the period
dr fixed manufacturing overhead applied
volume variance on fixed mnf overhead
cr fixed manufacturing overhead incurred
budget variance on fixed mnf overhead
actual overhead - applied overhead = favorable variance
overapplied overhead
actual overhead minus applied overhead
unfavorable : under applied overhead
what to do with unfavorable net variances cost of production
inefficiencies which should be recognized in current period
what to do with insignificant net favorable variances
included with costs of goods sold in income statement
what to do with significant favorable variances
allocate the favorable variance in inventory (WIP, FG) and costs of goods sold
what’s segment margin
divisions contribution to overall operations
