Chapter 22 – Performance Evaluation using Variances from Standard Costs – Flashcards
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Standards
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Performance goals, often relating to how much a product should cost.
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Standard cost
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A detailed estimate of what a product should cost.
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1.) Direct materials
2.) Direct labor
3.) Factory overhead
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Manufacturing companies normally use standard cost for each of the three following product costs:
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Standard cost systems
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Accounting systems that use standards for each element of manufacturing cost entering into the finished product.
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Ideal standards
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Standards that can be achieved only under perfect operating conditions, such as no idle time, no machine breakdowns, and no materials spoilage; also called theoretical standards.
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Currently attainable standards
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Standards that represent levels of operation that can be attained with reasonable effort; sometimes called normal standards.
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Standard price x Standard quantity
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Standard cost per unit equation
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Budget performance report
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A report that summarizes actual costs, standard costs, and the differences for the units produced.
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Cost variances
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The difference between actual cost and standard cost.
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Favorable cost variance
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A variance that occurs when the actual cost is less than standard cost.
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Unfavorable cost variance
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A variance that occurs when the actual cost exceeds the standard cost.
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Total manufacturing cost variance
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The difference between total standard costs and total actual costs for the units produced.
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1.) Price variance
2.) Quantity variance
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The total direct materials variance is separated into:
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(Actual price - standard price) x Actual quantity
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Direct materials price variance equation
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(Actual quantity - standard quantity) x Standard price
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Direct materials quantity variance equation
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(Actual rate per hour - standard rate per hour) x Actual hours
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Direct labor rate variance equation
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(Actual labor hours - Standard labor hours) x Standard rate per hour
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Direct labor time variance equation
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Controllable variance
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The difference between the actual variable factory overhead cost and the budgeted variable factory overhead for actual production.
Computed as:
Actual variable factory OH - Budgeted variable factory OH
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Volume Variance
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The difference between the budgeted fixed overhead at of normal capacity and the standard fixed overhead for the actual units produced.
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Nonfinancial performance measure
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A performance measure expressed in a measure other than dollars.
