BEC 4 - Variance Analysis

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What is the purpose of variance analysis?

To ascertain the differences between the budget (plan) and what actually happened, and then to determine why it happened.
What are standard costs?

The costs the firm expects it should incur during production (the budgeted amount)
What is the formula for Standard Direct Total Cost

Standard Direct Costs = standard price x standard quantity
What is the formula for Standard Indirect (overhead) Costs

Standard Indirect Costs = standard (predetermined) application rate x standard quantity
Which product costs are subject to variance analysis
- direct materials
- direct labor
- variable manufacturing overhead
- fixed manufacturing overhead
For each variable cost subject to variance analysis, what are the two components that make up that cost?
- quantity
- price
What is the formula to analyze the direct materials price variance? The usage variance? What is the usage variance used to measure?
- Price Variance = Actual quantity purchased [not used] x (actual price - standard price)
- Usage Variance = Standard price x (actual quantity used - standard quantity allowed). Measures efficiency.
What is the formula to analyze the direct labor price variance? The usage variance? What is the usage variance used to measure?
- Price Variance = Actual hours worked x (actual wage rate - standard wage rate)
- Usage Variance = Standard wage rate x (actual hours worked - standard hours allowed). Measures efficiency.
True / False: You can net the (1) materials variances, (2) the labor variances. Why?
- (1) False because the calculation is performed with two base amounts -- the product purchased vs the produce used
- (2) True because the calculation is performed with the same base amounts -- hours actually worked x rate paid.
When performing a manufacturing overhead variance analysis, the comparison is between _______ and ________.

Actual overhead incurred vs overhead applied
What are the four equations for overhead variance?
- (1) VOH rate (spending) variance = actual hours x (actual rate - standard rate)
- (2) VOH efficiency variance = standard rate x (actual hours - standard hours allowed)
- (3) FOH spending variance = actual fixed overhead - budgeted fixed overhead
- (4) FOH volume variance = budgeted fixed OH - standard fixed OH cost allocated to product, where standard fixed OH cost is based on actual production x standard rate.
When standard costing is used, what are the steps to determine the application of overhead?
- (1) Determine a budgeted total amount of overhead ($100,000)
- (2) Determine a budgeted cost driver amount (1000 labor hours)
- (3) Determine a budgeted cost per cost driver amount
- (4) Apply the budgeted cost per cost driver amount to the actual quantity of the cost driver that occurred.
Is over-applied overhead favorable or unfavorable? How is over-applied overhead adjusted?
- Over-applied OH means the actual costs were less than budgeted = favorable
- Reduce COGS (increases net income)
True / False: You can net all the overhead variances.

True
What is the formula for the sales price variance? And sales volume variance?
- Sales Price Variance = Actual units sold x (actual price - budgeted price)
- Sales Volume Variance = Actual sales price x (actual volume - budgeted volume)
What is the formula for the production volume variance for overhead?
- Production Volume Variance = applied overhead - budgeted overhead based on standard hours.
- Applied Overhead = (std FOH rate x actual production)
- Budgeted Overhead = Total FOH budgeted
What are the easy formulas to determine (1) price variance for DM, (2) usage variance for DM, (3) rate variance for DL, (4) efficiency variance for DL
- PURE
- P = Price variance for DM = D x A
- U = Usage variance for DM = D x S
- R = Rate variance for DL = D x A
- E = Efficiency variance for DL = D x S
How is the flexible budget variance calculated?
- Flexible budget amount = actual units produced x standard cost
- Flexible budget variance = flexible budget amount - actual amount

Author

BethM

331549

Card Set

BEC 4 - Variance Analysis

Description

Becker Review

Updated

2017-05-21T01:15:36Z

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