2. To illustrate the use of standard costs, consider the Herman O. Thompson Sports, Inc. aka

3. Recall...... standard cost card

4. QuantityPriceCost DM3.5 Yards$6.00$21.00 DL2.0 Hours18.0036.00 VOH2.0 Hours4.008.00 Standard Cost Per Unit$65.00

5. First, a General Model for Variance Analysis AQ x APAQ x SPSQ x SP Total Variance Variance Materials Price Var. Labor Rate Var. VOH Spending Var. Material Quan Var. Labor Eff. Var. VOH efficiency Var.

6. AQ x APAQ x SPSQ x SP Total Variance Variance DM Price Variance DL Rate Variance VOH Spending Var. DM Quantity Var. DL Efficiency Var. VOH Efficiency Var.

7. Another Way to Calculate Variances

8. DM Price Variances...

9. DM Quantity Variances...

10. An Example Calculating Variances

11. Calculating Direct Materials Variances

12. QuantityPriceCost DM3.5 Yards$6.00$21.00 DL2.0 Hours18.0036.00 VOH2.0 Hours4.008.00 Standard Cost Per Unit$65.00

13. Data for last month’s production: # of suits completed Cost of DM purchases (20,000 x $5.40) Yards of material used 5,000 $108,000 20,000

14. Using these data and the data from the standard cost card, calculate the material price and quantity variances.

15. AQ x APAQ x SPSQ x SP $20,000 x $5.40 $108,000 $20,000 x $6 $120,000 17,500 Yds x $6 $105,000 Price Variance Quantity Variance $3,000(U) $12,000(F)$15,000(U) Total Variance

16. Alternative method – Direct Materials Price Variance

17. Alternative method – Direct Materials Quantity Variance

18. Isolating the Variances

19. The objective of variance analysis is to isolate the variances as soon in the process as possible.

20. AQ x APAQ x SPSQ x SP $20,000 x $5.40 $108,000 $20,000 x $6 $120,000 17,500 Yds x $6 $105,000 Price Variance Quantity Variance $3,000(U) $12,000(F)$15,000(U) Total Variance

21. Placing Responsibility For Variances

22. AQ x APAQ x SPSQ x SP $20,000 x $5.40 $108,000 $20,000 x $6 $120,000 17,500 Yds x $6 $105,000 Price Variance Quantity Variance $3,000(U) $12,000(F)$15,000(U) Total Variance

23. Calculating Direct Labor Variances

24. Data for last month’s production: # of suits completed Cost of Direct Labor (10,500 x $20) 5,000 $210,000

25. Using these data and the data from the standard cost card, calculate the labor rate and efficiency variances.

26. AH x ARAH x SRSH x SR 10,500 Hrs x $20 $210,000 10,500 Hrs x $18 $189,000 10,000 Hrs x $18 $180,000 $30,000(U) $21,000(U)$9,000(U) Rate Variance Efficiency Variance

27. Alternative Method DL Rate Variance

28. Alternative Method DL Efficiency Variance

29. Calculating Variable Overhead

30. Data for last month’s production: # of suits completed5,000 Actual DLHs10,500 Actual VMOH$40,950

31. Using these data and the data from the standard cost card, calculate the variable overhead variances.

32. AH x ARAH x SRSH x SR $950(U) $1,050(F)$2,000(U) Actual OH Cost $40,950 10,500Hrs. x $4 $42,000 10,000 Hrs. x $4 $40,000 Spending Variance Efficiency Variance

33. Alternative Method Overhead Spending Variance

34. Alternative Method Overhead Efficiency Variance

35. This is still an accounting class isn’t it? Where are the journal entries. I want journal entries!

36. Purchase of Materials Raw Materials DM Price Variance Accounts Payable 120,000 12,000 108,000

37. Usage of Materials Work in Process DM Qty Variance Raw Materials 105,000 15,000 120,000

38. Direct Labor Cost Work in Process Labor Rate Variance Labor Eff Variance 180,000 21,000 9,000 Wages Payable210,000