10 N6 fx D E F G H Variance Analysis M No Video The Lopez Company uses standard costing its manufacturing plant for auto-parts. The standard cost of a particular auto- part, based on 4,000 units of output per year, and budgeted variable overhead of $192,000 is as follows: Direct Materials Direct Labor Variable overhead Budgeted Units 3 Per Unit lbs $ 5 DLH 5.00 15.00 6 MH 4,000 Budgeted variable OH cost $ 192,000 There was no beginning raw materials inventory, but ending inventory consisted of 1,000 lbs. of raw materials. Actual production was 4,200 units, and actual costs were as follows. T W 11 12 13 14 15 16 17 18 19 Actual Total Cost Direct Materials Direct Labor Variable overhead Actual Production 13,460 lbs 21,500 DLH 24,600 MH $ 66,836 344,000 204,000 This is what we would have budgeted based on the actual level of output in cell H17. 4,200 Ending raw materials inventory (lbs) 1,000 Actual Quanity at Actual Price 20 Actual Quantity Purchased, at Standard Price Actual Quantity Used, This is based on the originally planned level of output in cell H9. at Standard Price Flexible Budget Planning Budget 21 AQ AP AQ SP AQ SP SQ SP SQ X SP 22 X X X 24 25 26 Price Variance Quantity Variance Activity Variance 27 28 29 Compare the Flexible Budget SQ to the Planning Budget SQ. 30 31 Remember that when the actual quantity purchased is different from the actual quantity used the Price and Quantity variances are calculated separately. The price variance is based on the actual quantity purchased, while the quantity variance is based on the actual quantity used. Also, it no longer makes sense to talk about a total variance. 32 33 34 Actual Hours of Inputs, at Direct Labor Variances Actual Hours of Inputs, at Flexible Budget Planning Budget 35 Actual Rate Standard Rate 36 AH X AR AH SR SH X SR SH X SR 37 X X 39 40 41 Rate Variance Efficiency Variance Activity Variance 42 43 44 45 Total Spending Variance 46 47 48 49 50 Actual Hours of Inputs, at 51 52 Actual Rate AH X AR Variable Overhead Variances Actual Hours of Inputs, at Standard Rate AH SR 53 Flexible Budget Planning Budget SH X X SR SH X SR J4 55 56 57 Rate Variance Efficiency Variance Activity Variance 58 59 60 61 Total Spending Variance 62 63 64