University:
California State University, Northridge
Course:
ACCT 230 | Introduction to Managerial Accounting
Academic year:

2024
Views:

156

Pages:

24
Author:

Amina Clayton

Chapter 8 Standard Costs Part 4 Learning Objective LO4 To compute the variable manufacturing overhead spending and efficiency variances 8-56 Variable Manufacturing Overhead Variances Example Glacier Peak Outfitters has the following direct variable manufacturing overhead labor standard for its mountain parka. 1.2 standard hours per parka at $4.00 per hour Last month, employees actually worked 2,500 hours to make 2,000 parkas. Actual variable manufacturing overhead for the month was $10,500. 8-57 Variable Manufacturing Overhead Variances Summary Actual Hours × Actual Rate Actual Hours × Standard Rate Standard Hours × Standard Rate 2,500 hours × $4.20 per hour 2,500 hours × $4.00 per hour 2,400 hours × $4.00 per hour = $10,500 = $10,000 = $9,600 Spending variance $500 unfavorable Efficiency variance $400 unfavorable 8-58 Variable Manufacturing Overhead Variances Summary Actual Hours × Actual Rate 2,500 hours × $4.20 per hour = $10,500 Actual Hours × Standard Rate Standard Hours × Standard Rate 2,500 hours 2,400 hours × $10,500× ÷ 2,500 hours $4.00 per per hourhour $4.00 per hour = $4.20 = $10,000 Spending variance $500 unfavorable = $9,600 Efficiency variance $400 unfavorable 8-59 Variable Manufacturing Overhead Variances Summary Actual Hours × Actual Rate Actual Hours × Standard Rate 2,500 hours 2,500 hours × 1.2 hours per ×parka × 2,000 $4.20 per hour parkas $4.00 per hour = 2,400 hours = $10,500 = $10,000 Spending variance $500 unfavorable Standard Hours × Standard Rate 2,400 hours × $4.00 per hour = $9,600 Efficiency variance $400 unfavorable 8-60 Variable Manufacturing Overhead Variances: Using Factored Equations Variable manufacturing overhead spending variance VMSV = AH (AR - SR) = 2,500 hours ($4.20 per hour – $4.00 per hour) = 2,500 hours ($0.20 per hour) = $500 unfavorable Variable manufacturing overhead efficiency variance VMEV = SR (AH - SH) = $4.00 per hour (2,500 hours – 2,400 hours) = $4.00 per hour (100 hours) = $400 unfavorable 8-61 Quick Check  Zippy Hanson Inc. has the following variable manufacturing overhead standard to manufacture one Zippy: 1.5 standard hours per Zippy at $3.00 per direct labor hour Last week, 1,550 hours were worked to make 1,000 Zippies, and $5,115 was spent for variable manufacturing overhead. 8-62 Quick Check  Zippy Hanson’s spending variance (VOSV) for variable manufacturing overhead for the week was: a. $465 unfavorable. b. $400 favorable. c. $335 unfavorable. d. $300 favorable. 8-63 Quick Check  Zippy Hanson’s spending variance (VOSV) for variable manufacturing overhead for the week was: a. $465 unfavorable. b. $400 favorable. VOSV = AH(AR - SR) c. $335 unfavorable. VOSV = 1,550 hrs($3.30 - $3.00) d. $300 favorable. VOSV = $465 unfavorable 8-64 Quick Check  Zippy Hanson’s efficiency variance (VOEV) for variable manufacturing overhead for the week was: a. $435 unfavorable. b. $435 favorable. c. $150 unfavorable. d. $150 favorable. 8-65 Quick Check  Zippy Hanson’s efficiency variance (VOEV) for variable manufacturing overhead for the week was: a. $435 unfavorable. b. $435 favorable. 1,000 units × 1.5 hrs per unit c. $150 unfavorable. d. $150 favorable. VOEV = SR(AH - SH) VOEV = $3.00(1,550 hrs - 1,500 hrs) VOEV = $150 unfavorable 8-66 Quick Check  Zippy Actual Hours × Actual Rate Actual Hours × Standard Rate Standard Hours × Standard Rate 1,550 hours × $3.30 per hour 1,550 hours × $3.00 per hour 1,500 hours × $3.00 per hour = $5,115 = $4,650 Spending variance $465 unfavorable = $4,500 Efficiency variance $150 unfavorable 8-67 Variance Analysis and Management by Exception How do I know which variances to investigate? Larger variances, in dollar amount or as a percentage of the standard, are investigated first. 8-68 Advantages of Standard Cost Systems Standard costs are a key element of the management by exception approach which helps managers focus their attention on the most important issues. • Standards that are viewed as reasonable by employees can serve as benchmarks that promote economy and efficiency. • Standard costs can greatly simplify bookkeeping. • Standard costs fit naturally into a responsibility accounting system. 8-69 Potential Problems with Standard Costs Emphasizing standards may exclude other important objectives. Standard cost reports may not be timely. Invalid assumptions about the relationship between labor cost and output. Favorable variances may be misinterpreted. Potential Problems Emphasis on negative may impact morale. Continuous improvement may be more important than meeting standards. 8-70 The Balanced Scorecard A balanced scorecard consists of an integrated set of performance measures that are derived from and support a company’s strategy. Specific Company Strategy Performance measures included in the balanced scorecard. 8-71 The Balanced Scorecard: From Nonfinancial Performance Measures Specific Company Strategy Financial Performance Measures Nonfinancial Performance Measures Example: Standard Cost Variances. Examples: Product Quality Customer Satisfaction. 8-72 Appendix 8A General Ledger Entries to Record Variances. 8-73 Learning Objective LO5 Prepare journal entries to record standard costs and variances 8-74 Appendix 8A Journal Entries to Record Variances We will use information from the Glacier Peak Outfitters example presented earlier in the chapter to illustrate journal entries for standard cost variances. Recall the following: Material AQ × AP = $1,029 AQ × SP = $1,050 SQ × SP = $1,000 MPV = $21 F MQV = $50 U Labor AH × AR = $26,250 AH × SR = $25,000 SH × SR = $24,000 LRV = $1,250 U LEV = $1,000 U Now, let’s prepare the entries to record the labor and material variances. 8-75 Appendix 8A Direct Material Variances GENERAL JOURNAL Date Description Raw Materials Post. Ref. Page 4 Debit Credit 1,050 Materials Price Variance 21 Accounts Payable 1,029 To record the purchase of material Work in Process Materials Quantity Variance Raw materials 1,000 50 1,050 To record the use of material 8-76 Appendix 8A Direct Labor Variances GENERAL JOURNAL Date Description Work in Process Post. Ref. Page 4 Debit 24,000 Labor Rate Variance 1,250 Labor Efficiency variance 1,000 Wages Payable Credit 26,250 To record direct labor Variable manufacturing overhead variances are usually not recorded in the accounts separately, but are determined as part of the general analysis of overhead. 8-77 Cost Flows in a Standard Cost System  Inventories are recorded at standard cost.  Variances are recorded as follows:  Favorable variances are credits, representing savings in production costs.  Unfavorable variances are debits, representing excess production costs.  Standard cost variances are usually closed to cost of goods sold.  Favorable variances decrease cost of goods sold.  Unfavorable variances increase cost of goods sold. 8-78