Mastery Problem: Manufacturing Cost Variance (Actual Costs Compared to Standard Costs) Manufacturing cost variances may come from material costs that are higher or lower than expected, material usage that is not what was expected, higher or lower labor costs than expected, or more or less time spent to produce an item than expected. Overhead cost and volume variances are another cause for costs to be higher or lower than what was expected. The total manufacturing variance can be broken down by cost type (materials, labor, overhead) and further by cost variances within cost types and usage or efficiency variances within cost types: Direct Materials Price Variance Direct Materials Cost Variance Direct Materials Quantity Variance Direct Labor Rate Variance Total Manufacturing Direct Labor Cost Cost Variance Variance Direct Labor Time Variance Variable Factory Overhead Controllable Variance Factory Overhead Cost Variance Fixed Factory Overhead Volume Variance Manufacturing cost variances are determined using a standard costing system. Standard costs are predetermined _ v costs that should be incurred under efficient operating conditions. Standard costing is most suited to manufacturing V organizations, where activities consist of common or repetitive operations and the direct costs required to produce each item are defined. In a standard costing system, it is important to understand that costs are compared to budget based on a flexible budget rather than a fixed budget. Flexible budgets use standard - V costs and actual _ v production volume. This means that the actual costs in the period are compared to the number of units produced in the period at the standard cost. Feedback Check My Work Standards are set up as part of the budgeting process and are used when per unit costs can be estimated under efficient operating conditions. Remember that flexible budgets account for changes in volume . If actual costs are greater than standard costs, the variance is unfavorable _ v , alternatively, if actual costs are less than standard costs, the variance is favorableDirect Materials Cost Variance Calculating Direct Materials Cost Variance, you can see that the actual costs are higher _ v than standard and the actual quantity purchased and used is less _ v than standard. The two variances are combined for a total favorable _ v direct material cost variance of $ X . Direct Labor Cost Variance Calculating Direct Labor Cost Variance, you can see that the actual costs are higher _ v than standard and the actual hours are less _ v than standard. The two variances are combined for a total favorable _ v direct labor cost variance of $ x . Feedback Check My Work The illustrations provide the information to complete the problem. The standard cost sheet for a product is shown. Standard Cost |Manufacturing Costs Standard price Standard Quantity per unit Direct materials $4.70 per pound 6.00 pounds $ 28.20 Direct labor $12.39 per hour 2.40 hours 29.74 Overhead $2.30 per hour 2.40 hours 5.52 $ 63.46 The company produced 3,000 units that required: 18,500 pounds of material purchased at $4.55 per pound . 7,110 hours of labor at an hourly rate of $12.69 per hour . Actual overhead in the period was $17,010 Fill in the Budget Performance Report for the period. Some amounts are provided. Round your answers to the nearest dollar. However, do not round your intermediate calculations. Budget Performance Report Variance Manufacturing Costs: Actual Standard (Favorable)/ 3,000 units Costs Costs Unfavorable Direct materials $84,175 $ Direct labor 89,208 Overhead 17,010 $1,043 Split the direct materials cost variance into the materials price varaince and the Direct materials quantity variance. Remember that you want to isolate the price variance from the quantity variance so be sure to use factors that do not overlap. Also remember that the two variances should equal the total direct material cost variance. Direct materials price variance: Direct materials quantity variance: (Actual price - Standard price) x (Actual quantity - Standard quantity) x actual _ V quantity standard - V price $2,775 favorable $2,350 unfavorable Split the direct labor cost variance into the direct labor rate variance and the direct labor time variance. Remember that you want to isolate the price variance from the efficiency o use factors member that the two s should equal the total direct labor cost variance.Direct Materials Cost Variance Calculating Direct Materials Cost Variance, you can see that the actual costs are higher _ v than standard and the actual quantity purchased and used is less _ v than standard. The two variances are combined for a total favorable _ v direct material cost variance of $ X . Direct Labor Cost Variance Calculating Direct Labor Cost Variance, you can see that the actual costs are higher _ v than standard and the actual hours are less _ v than standard. The two variances are combined for a total favorable _ v direct labor cost variance of $ x . Feedback Check My Work The illustrations provide the information to complete the problem. The standard cost sheet for a product is shown. Standard Cost |Manufacturing Costs Standard price Standard Quantity per unit Direct materials $4.70 per pound 6.00 pounds $ 28.20 Direct labor $12.39 per hour 2.40 hours 29.74 Overhead $2.30 per hour 2.40 hours 5.52 $ 63.46 The company produced 3,000 units that required: 18,500 pounds of material purchased at $4.55 per pound . 7,110 hours of labor at an hourly rate of $12.69 per hour . Actual overhead in the period was $17,010 Fill in the Budget Performance Report for the period. Some amounts are provided. Round your answers to the nearest dollar. However, do not round your intermediate calculations. Budget Performance Report Variance Manufacturing Costs: Actual Standard (Favorable)/ 3,000 units Costs Costs Unfavorable Direct materials $84,175 $ Direct labor 89,208 Overhead 17,010 $1,043 Split the direct materials cost variance into the materials price varaince and the Direct materials quantity variance. Remember that you want to isolate the price variance from the quantity variance so be sure to use factors that do not overlap. Also remember that the two variances should equal the total direct material cost variance. Direct materials price variance: Direct materials quantity variance: (Actual price - Standard price) x (Actual quantity - Standard quantity) x actual _ V quantity standard - V price $2,775 favorable $2,350 unfavorable Split the direct labor cost variance into the direct labor rate variance and the direct labor time variance. Remember that you want to isolate the price variance from the efficiency o use factors member that the two s should equal the total direct labor cost variance.Manufacturing cost variances are determined using a standard costing system. Standard costs are predetermined V costs that should be incurred under efficient operating conditions. Standard costing is most suited to manufacturing _ v organizations, where activities consist of common or repetitive operations and the direct costs required to produce each item are defined. In a standard costing system, it is important to understand that costs are compared to budget based on a flexible budget rather than a fixed budget. Flexible budgets use Standard v costs and actual V production volume. This means that the actual costs in the period are compared to the number of units produced in the period at the standard cost. Feedback Check My Work Standards are set up as part of the budgeting process and are used when per unit costs can be estimated under efficient operating conditions. Remember that flexible budgets account for changes in volume If actual costs are greater than standard costs, the variance is unfavorable V, alternatively, if actual costs are less than standard costs, the variance is favorable Direct Materials Cost Variance Calculating Direct Materials Cost Variance, you can see that the actual costs are higher _ v than standard and the actual quantity purchased and used is less than standard. The two variances are combined for a total favorable _ v direct material cost variance of $ 425 X Direct Labor Cost Variance Calculating Direct Labor Cost Variance, you can see that the actual costs are higher _ v than standard and the actual hours are less than standard. The two variances are combined for a total favorable _ v direct labor cost variance of $ 1,018 X Feedback Check My Work The illustrations provide the information to complete the problem. The standard cost sheet for a product is shown. Standard Cost Manufacturing Costs Standard price Standard Quantity per unit Direct materials $4.70 per pound 5.00 pounds $ 28.20 Direct labor $12.39 per hour 2.40 hours $ 29.74 5,52The standard cost sheet for a product is shown. Standard Cost Manufacturing Costs Standard price Standard Quantity per unit Direct materials $4.70 per pound 6.00 pounds $ 28.20 Direct labor $12.39 per hour 2.40 hours $ 29.74 Overhead $2.30 per hour 2.40 hours $ 5.52 $ 6 The company produced 3,000 units that required: . 18,500 pounds of material purchased at $4.55 per pound . 7,110 hours of labor at an hourly rate of $12.69 per hour . Actual overhead in the period was $17,010 Fill in the Budget Performance Report for the period. Some amounts are provided. Round your answers to the nearest dollar. However, do not round your intermediate calculations. Budget Performance Report Variance Manufacturing Costs: Actual Standard (Favorable)/ 3,000 units Costs Costs Unfavorable $ Direct materials $84,175 84,600 V -425 V Direct labor 90,226 39,208 1,018 V Overhead 17,010 16,560 450 V $1,043 191,411 190,368 Split the direct materials cost variance into the materials price varaince and the Direct materials quantity variance. Remember that you want to isolate the price variance from the quantity variance so be sure to use factors that do not overlap. Also remember that the two variances should equal the total direct material cost variance. Direct materials price variance: Direct materials quantity variance: (Actual price - Standard price) x (Actual quantity - Standard quantity) x actual V quantity standard V price $2,775 favorable $2,350 unfavorable Split the direct labor cost variance into the direct labor rate variance and the direct labor time variance. Remember that you want to isolate the price variance from the efficiency variance so be sure to use factors that do not overlap. Also remember that the two variances should equal the total direct labor cost variance. Direct labor rate variance: Direct labor time variance: (Actual rate - Standard rate) x actual V (Actual hours - Standard hours) x hours standard V labor rate $2,133 unfavorable $1,115 favorable v Manufacturing variances are period costs that are rolled into cost of sales V and reported on the income statement V . A favorable variance is recorded as a credit v and an unfavorable variance is recorded as a debit V