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Category: Business and Industry
Date Submitted: 07/17/2012 09:02 AM
Accounting Tutorial –
Variance Analysis:
* DL + DM = DL: rate variance DM: price variance
* OH
* Price variance = (actual price – std price) x actual quantity
* Selling price variance = (act selling price – budgeted selling price) x qty sold
* Efficiency variance = (actual quantity – std quantity) x std price
* Selling volume variance = (act quantity – budget quantity) budgeted CM
* Variance = Actual – budgeted
* If impac on income is positive, variance is favourable
* If impact on income is negative, variance is unfavourable
Costing Approaches –
* full costing (absorption)
* product cost = DM + DL + variable OH + fixed OH
* GAAP (external reporting)
* Direct costing (variable)
* Product cost = DM + DL + variable OH
* Performance evaluation (internal reporting)
OH Variances:
* Variable OH
* Spending variance
* Efficiency variance
* Fixed OH
Actual - Flexible - Flexible
Act input actual input budget input
x x x
Act price budget price budget price
|_____________________________________| |_______________________________________|
Variable OH spending variance efficiency variance
|_________________________________________|
Fixed OH flexible budgeted variance
Flexible variance – allocated budget variance (FOH) = production volume variance
Spending (variable) + efficiency + spending (fixed) + production volume variance = total OH variance
Practice Questions –
Problem 1:
Zebra manufacturing makes necklaces and uses standard costing system. The company uses direct labour hours as a basis to allocate factory overhead. For year 2010, the company budgeted to produce and sell 2,000 necklaces. The TOTAL budgeted factory overhead of both variance and fixed for the year is $49,600. Budgeted direct labour hours are 800 hours. Following are partial data about the...