MANAGEMENT ACCOUNTING & CONTROL STANDARD COSTS AND VARIANCE ANALYSIS LEARNING ACTIVITY 1 Torres Company has established standard costs for the cabinet department, in which one size of MX cabinet is made. The standard costs of producing one of these MX cabinets are shown below: Standard Cost Card – MX Cabinet Direct Material: Lumber 50 board ft at P 4 200 Direct Labor: 8 hours at P 10 80 Overhead Costs: Variable – 8 hrs at P5 40 Fixed – 8 hrs at P3 24 Total Standard Unit Cost 344 During June 2018, 500 of these cabinets were produced. The cost of operations during the month are shown below. There is no work in process at the beginning and end of the month. Direct material purchased: 30,000 bf at P4.10 123,000 Direct materials used: 24,000 board ft Direct labor: 4,200 hrs at P9.50 39,900 Overhead Costs : Variable Costs 22,000 Fixed Costs 11,000 The budgeted overhead for the cabinet department based on normal monthly activity of 4,500 hours is P 36,000 of which P 22,500 is variable and P 13,500 is fixed overhead. REQUIRED: Compute for the following variances for Prime Costs: Direct Material Price Variance Direct Material Usage Variance Direct Labor Rate Variance Direct Labor Efficiency Variance Compute for the Factory Overhead Variance using: Two-way Analysis Three-way Analysis
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
LEARNING ACTIVITY 1
Torres Company has established standard costs for the cabinet department, in which one size of MX cabinet is made. The standard costs of producing one of these MX cabinets are shown below:
|
Standard Cost Card – MX Cabinet |
|
|
Direct Material: Lumber 50 board ft at P 4 |
200 |
|
Direct Labor: 8 hours at P 10 |
80 |
|
Overhead Costs: Variable – 8 hrs at P5 |
40 |
|
Fixed – 8 hrs at P3 |
24 |
|
Total Standard Unit Cost |
344 |
During June 2018, 500 of these cabinets were produced. The cost of operations during the month are shown below. There is no work in process at the beginning and end of the month.
|
Direct material purchased: 30,000 bf at P4.10 |
123,000 |
|
Direct materials used: 24,000 board ft |
|
|
Direct labor: 4,200 hrs at P9.50 |
39,900 |
|
Overhead Costs : Variable Costs |
22,000 |
|
Fixed Costs |
11,000 |
The budgeted overhead for the cabinet department based on normal monthly activity of 4,500 hours is P 36,000 of which P 22,500 is variable and P 13,500 is fixed overhead.
REQUIRED:
- Compute for the following variances for Prime Costs:
- Direct Material Price Variance
- Direct Material Usage Variance
- Direct Labor Rate Variance
- Direct Labor Efficiency Variance
- Compute for the Factory Overhead Variance using:
- Two-way Analysis
- Three-way Analysis
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