Presentation is loading. Please wait.

Presentation is loading. Please wait.

Variance Analysis: Direct Labor and Direct Materials ACG

Published byEdward Burke Modified over 6 years ago

Similar presentations

Presentation on theme: "Variance Analysis: Direct Labor and Direct Materials ACG"— Presentation transcript:

1 Variance Analysis: Direct Labor and Direct Materials ACG 4361 5-3
Prepared by Diane Tanner University of North Florida 5-3

2 Labor Variances Three labor variances Unfavorable Variance
Labor price (or rate) variance = LPV or LRV Labor quantity (or efficiency) variance = LQV or LEV Labor flexible budget variance Also called the total labor variance Standard cost system  Inputs are recorded at standard, Resulting in the variances isolated in the accounting records Unfavorable Variance  actual cost > standard Favorable Variance  actual cost < standard

3 Labor Variance Analysis – Level 3
A S S P Q × × × A A S Actual Price × Actual Quantity Standard Price × Actual Quantity Standard Price × Standard Quantity Allowed Labor Price (Rate) Variance Labor Quantity (Efficiency) Variance Labor Flexible Budget Variance

4 Labor Variances Example
Visor Inc. has the following direct labor standard to manufacture one visor: 1.5 standard hours per visor at $6.00 per direct labor hour Last month 1,550 direct labor hours were worked at a total labor cost of $9,610 to make 1,000 visors. $9,610  1,550 hrs. = $6.20/hr P A $6.20 S $ S $ × × × Q A 1,550 hrs. A 1,550 hrs S 1.5*1,000 hrs = $9, = $9, = $9,000 LRV = $310 U LEV = $300 U Labor Flexible Budget Variance = $610 U

5 Interpretation of Labor Variances
Type of Variance Variance Occurs When Unfavorable labor rate variance  Actual labor rate per hour exceeds the standard labor rate per hour Favorable labor rate variance Actual labor rate per hour is less than standard labor rate per hour Unfavorable labor efficiency variance Actual labor hours used exceeds the allowed/standard labor hours at the activity level achieved   Favorable labor efficiency variance Actual labor hours used is less than allowed/standard labor hours at the activity level achieved

6 Responsibility for Labor Variances
Managers that are able to control particular costs are held responsible for those costs. I am responsible for the labor rate and labor efficiency variances because I control these costs. Production supervisors make work assignments, monitor the efficiency of employees, authorize pay raises, and terminate employees. Production Supervisor

7 Material Variances Three material variances Unfavorable Variance
Material price variance = MPV Isolated at the point of purchase Material quantity variance = MQV Isolated when used in production Material flexible budget variance Also called the total material variance Standard cost system  Inputs are recorded at standard, Resulting in the variances isolated in the accounting records Unfavorable Variance  actual cost > standard Favorable Variance  actual cost < standard

8 Material Variance Analysis – Level 4
A S S S P Q × × × × A A A S p p u Actual Price × Actual Quantity Purchased Standard Price × Actual Quantity Purchased Standard Price × Actual Quantity Used Standard Price × Standard Quantity Allowed Materials Price Variance Materials Quantity Variance Materials Flexible Budget Variance

9 Material Variances Example
Turtle Town has the following direct material standard for its turtle floats: lb. of resin per float at $5.00 per lb. Resin purchased: 440 pounds at $4.85 per pound Resin used: 390 pounds to make 1,980 floats P A $ S $ S $ S $5.00 × × × × Q Ap 440 lbs Ap 440 lbs Au 390 lbs S 0.2 x 1980 = $2, = $2, = $1, = $1,980 MPV = $66 F MQV = $30 F Materials Flexible Budget Variance = $96 F

10 Isolation of Material Variances
Price Variance Isolated at the purchase date Computed on the quantity purchased This is the earliest point in time in which the variance can be determined Quantity Variance Isolated at the date used in production Computed on the quantity used We need the variance as early as possible to make product pricing or quantity changes. As a purchasing manager, I need the price variance sooner so that I can better identify purchasing problems.

11 Interpretation of Material Variances
Type of Variance Variance Occurs When Unfavorable material price variance  Actual material price per material denomination quantity exceeds the standard material price Favorable material price variance Actual material price per material denomination quantity is less than standard material quantity Unfavorable material quantity variance Actual material quantity used exceeds the allowed/standard material quantity allowed at the activity level achieved Favorable material quantity variance Actual material quantity used is less than allowed/standard material quantity allowed at the activity level achieved

12 Material Variance Responsibility Conflicts
You used too much material because of poorly trained workers and shoddy equipment maintenance, and you are a lousy scheduler! You make me overnight the material making it cost more, causing unfavorable price variances. I am not responsible for this unfavorable material quantity variance. You purchased cheap material, so my people had to use more of it. Production Manager Purchasing Manager

13 The End

Download ppt "Variance Analysis: Direct Labor and Direct Materials ACG"

Similar presentations

Chapter 11 Standard Costs and Variance Analysis

Chapter 11 Standard Costs and Variance Analysis
CHAPTER 10 The Need for Standards Standards Are common in business They are often imposed by government agencies (and called regulations) Standard costs.

CHAPTER 10 The Need for Standards Standards Are common in business They are often imposed by government agencies (and called regulations) Standard costs.
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 10 Standard Costing, Operational Performance Measures,

Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 10 Standard Costing, Operational Performance Measures,
Copyright © 2008, The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin Chapter Eleven Standard Costs and the Balanced Scorecard.

Copyright © 2008, The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin Chapter Eleven Standard Costs and the Balanced Scorecard.
Chapter 15 Fundamentals of Variance Analysis. 15-2 Learning Objectives 4.Prepare and use a profit variance analysis. 2.Develop and use flexible budgets.

Chapter 15 Fundamentals of Variance Analysis Learning Objectives 4.Prepare and use a profit variance analysis. 2.Develop and use flexible budgets.
PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA McGraw-Hill/Irwin.

PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA McGraw-Hill/Irwin.
Standard Costing: A Managerial Control Tool

Standard Costing: A Managerial Control Tool
Standard Costs and the Balanced Scorecard

Standard Costs and the Balanced Scorecard
Standard Costs 11/16/04 Chapter 10. © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Standard Costs Standard Costs are Predetermined. Used for.

Standard Costs 11/16/04 Chapter 10. © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Standard Costs Standard Costs are Predetermined. Used for.
Standard Costs Pertemuan 7. © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Standard Costs Standard Costs are Predetermined. Used for planning.

Standard Costs Pertemuan 7. © The McGraw-Hill Companies, Inc., 2003 McGraw-Hill/Irwin Standard Costs Standard Costs are Predetermined. Used for planning.
Copyright © 2006, The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin Standard Costs and Variance Analysis Chapter Ten & Eleven.

Copyright © 2006, The McGraw-Hill Companies, Inc.McGraw-Hill/Irwin Standard Costs and Variance Analysis Chapter Ten & Eleven.
Variance Analysis Chapter 7 Prepared by Diane Tanner

Variance Analysis Chapter 7 Prepared by Diane Tanner
Direct Material Variances Managerial Accounting Prepared by Diane Tanner University of North Florida Chapter 45.

Direct Material Variances Managerial Accounting Prepared by Diane Tanner University of North Florida Chapter 45.
Lecture 6 Cost Variances for Direct Costs. The derivation of the price and efficiency variances AP ACTUAL COST AQ AP = actual price per unit of input.

Lecture 6 Cost Variances for Direct Costs. The derivation of the price and efficiency variances AP ACTUAL COST AQ AP = actual price per unit of input.
Manufacturing Overhead Variances Managerial Accounting Prepared by Diane Tanner University of North Florida Chapter 46.

Manufacturing Overhead Variances Managerial Accounting Prepared by Diane Tanner University of North Florida Chapter 46.
Standard Costs and Balanced Scorecard

Standard Costs and Balanced Scorecard
Chapter 41 Cash, Short-term Investments and Accounts Receivable Chapter 4.

Chapter 41 Cash, Short-term Investments and Accounts Receivable Chapter 4.
Standard Costs and Operating Performance Measures.

Standard Costs and Operating Performance Measures.
Fundamentals of Accounting II

Fundamentals of Accounting II
8-1 Fundamental Managerial Accounting Concepts Thomas P. Edmonds Bor-Yi Tsay Philip R. Olds Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights.

8-1 Fundamental Managerial Accounting Concepts Thomas P. Edmonds Bor-Yi Tsay Philip R. Olds Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights.

Similar presentations

Ads by Google