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Question Content Area Mastery Problem: Manufacturing Cost Variance (Actual Costs Compared to Standard Costs) Question Content Area Manufacturing cost variances may come from material costs
Question Content Area Mastery Problem: Manufacturing Cost Variance (Actual Costs Compared to Standard Costs) Question Content Area 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 Cost Variance Direct Materials Price Variance Direct Materials Quantity Variance Total Manufacturing Cost Variance Direct Labor Cost Variance Direct Labor Rate Variance Direct Labor Time Variance Factory Overhead Cost Variance Variable Factory Overhead Controllable Variance Fixed Factory Overhead Volume Variance Manufacturing cost variances are determined using a standard costing system. Standard costs are predetermined costs that should be incurred under efficient operating conditions. Standard costing is most suited to manufacturing 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 costs and actual 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 Area Feedback 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. Question Content Area If actual costs are greater than standard costs, the variance is unfavorable , 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 than standard and the actual quantity purchased and used is less than standard. The two variances are combined for a total favorable direct material cost variance of $fill in the blank beb99b051066078_6 . Direct Labor Cost Variance Calculating Direct Labor Cost Variance, you can see that the actual costs are higher than standard and the actual hours are less than standard. The two variances are combined for a total favorable direct labor cost variance of $fill in the blank beb99b051066078_10 . Feedback Area Feedback Question Content Area The standard cost sheet for a product is shown. Manufacturing Costs Standard price Standard Quantity Standard Cost per unit Direct materials $4.40 per pound 5.80 pounds $ 25.52 Direct labor $12.33 per hour 2.10 hours $ 25.89 Overhead $2.20 per hour 2.10 hours $ 4.62 $ 56.03 The company produced 3,000 units that required: 17,900 pounds of material purchased at $4.25 per pound 6,220 hours of labor at an hourly rate of $12.63 per hour Actual overhead in the period was $14,210 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 Manufacturing Costs: 3,000 units Actual Costs Standard Costs Variance (Favorable)/ Unfavorable Direct materials $76,075 $fill in the blank 81dcb9fc9fcd036_1 76,560 $fill in the blank 81dcb9fc9fcd036_2 -485 Direct labor fill in the blank 81dcb9fc9fcd036_3 78,559 77,679 fill in the blank 81dcb9fc9fcd036_4 880 Overhead 14,210 fill in the blank 81dcb9fc9fcd036_5 13,860 fill in the blank 81dcb9fc9fcd036_6 350 $fill in the blank 81dcb9fc9fcd036_7 168,844 $fill in the blank 81dcb9fc9fcd036_8 168,099 $745 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 (Actual quantity - Standard quantity) x standard price $2,685 favorable $2,200 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 hours (Actual hours - Standard hours) x standard labor rate $1,866 unfavorable $986 favorable Manufacturing variances are period costs that are rolled into cost of sales and reported on the income statement . A favorable variance is recorded as a credit and an unfavorable variance is recorded as a debit .
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