W5 - Standard Costing & Variance Analysis LEARN ALL Flashcards
What is variance & the Two types of variance
Variance is the difference between actual results and expected results
Favourable variance (F): Actual results better than expected results
Adverse variance (A): Actual results worse than expected results
Variances can be split into 3 categories
Variable cost variances:
- Direct material: Material Price Variance & Material Usage Variance
- direct labour
- Variable overhead
Fixed production overhead variances
Sales variance
Material variance formulas
Material Price Variance:
Standard price per unit of material - Actual price) x Actual quantity of material purchased
Material Usage Variance:
(Standard quantity of materials for Actual production - Actual quantity used) x Standard price per unit of material
Labour variance formulas
3
Total labour variance:
Flex budget’s total labour costs - Actual total labour costs
Labour Rate variance:
(Standard labour rate per hour - Actual labour rate per hour) x Actual number of hours worked
Labour efficiency variance:
Standard number of labour hours for actual production - Actual number of hours worked) x Standard labour rate per hour
Variable Overhead variances
3
Total variable overhead variance:
Flex budget’s total VOH Costs - Actual Total VOH Costs
Variable overhead rate variance:
(Standard VOH Rate per hour - Actual VOH Rate per hour) x Actual number of hours worked
Variable overhead efficiency variance:
(Standard number of labour hours for Actual production - Actual number of labour hours worked) x Standard VOH rate per hour
Fixed Overhead Variances
Total fixed overhead variance (using absorption costing):
Fixed overhead actually absorbed (standard fixed overhead rate per unit x Actual production) - Actual total fixed overhead
Fixed Overhead Expenditure variance:
Budgeted fixed overheads - Actual fixed overheads
Fixed overhead volume variance:
Budgeted fixed overheads - Fixed overheads actually absorbed (Standard fixed overhead rate per unit x actual production)
Sales variances
Sales volume variance:
(Actual sales volume - Budgeted sales volume) x Standard profit
Sales price variances:
(Actual selling price - Budgeted selling price) x Actual sales volume
Operating statements (absorption)
Detailed statement:
Budgeted profit:
Sales volume variance
Standard profit on actual sales
Sales price variance
Profit after sales variances
Cost variances
Two columns: Favourable, Adverse
Materials - Price
- Usage
Labour - Rate
- Efficiency
Variable O/H - Rate
- Efficiency
Fixed O/H - Expenditure
- Volume
Actual Profit
Stocks valued at standard absorption cost
Standard statement - Just the difference between budgeted and actual
Standard cost:
Materials
- Price
- Usage
Labour
- Rate
- -Efficiency
Variable o/h:
Rate -
Efficiency -
Fixed o/h:
Rate -
Efficiency -
Actual cost:
Variance analysis under marginal costing -
Main differences from absorption costing
3
1) Sales volume variance calculated using standard contribution rather than standard profit
(Actual sales volume - Budgeted sales volume) x Standard contribution
2) Fixed overhead volume variances are all zero (AS WE DO NOT ABSORB IN MARGINAL COSTING)
- only the fixed overheaad expenditure variances will appear in the operating statement
3) All other variances are unchanged
Operating Statement under Marginal Costing
Budgeted Contribution
Sales volume variance
Standard contribution on actual sales
Sales price variance
Contribution after sales variances
Cost variances
Two columns: Favourable, Adverse
Materials - Price
- Usage
Labour - Rate
- Efficiency
Variable O/H - Rate
- Efficiency
Actual contribution
Actual fixed O/H
Actual profit
Stocks valued at standard marginal cost