accounting
ACCT 110 Study Guide_Ch. 11 (Sv)
Learning Objectives
[1] Distinguish between a standard, a budget and variance.
[2] State the formulas for determining direct materials and direct labor variances.
[3] State the formula for determining the total manufacturing overhead variance.
II. Standard and variance Standard is the norm (e.g. standard number of years to get a college degree; standard number of hours to get a good night’s sleep; standard amount of time spent to pass CPA, etc). Variance is the difference between the actual and the standard (Favorable variance vs. unfavorable variance).
III. Standard cost
To establish the standard cost of producing a product, it is necessary to establish standards for each manufacturing cost element— direct materials, direct labor, and manufacturing overhead
IV. Formula Standard Cost = standard Q * Standard P (1)
Total variance = total actual cost – total standard cost (2)
DM variance = DM price variance + DM quantity variance (3)
DL variance =
MOH variance =
Example 1:
Xonic Beverage company uses standard costs to measure performance at the production facility of its caffeinated energy drink, Xonic Tonic (XT). The standard direct materials price per pound is $3.00 (which includes cost of the direct material, the freight cost and the cost of receiving and handling); The standard direct materials quantity per gallon of XT is 4 pounds (this takes into account the waste, and spoilage). The standard direct labor rate per hour is $15 (including: hourly wage rate, payroll taxes and fringe benefits); the standard direct labor hours per gallon of XT is 2 hours; Xonic Tonic company uses standard direct labor hours as the activity base to allocate overhead costs. The standard predetermined overhead rate is $5 per direct labor hour.
Assume that in the month of June, Xonic needs to
Learning Objectives
[1] Distinguish between a standard, a budget and variance.
[2] State the formulas for determining direct materials and direct labor variances.
[3] State the formula for determining the total manufacturing overhead variance.
II. Standard and variance Standard is the norm (e.g. standard number of years to get a college degree; standard number of hours to get a good night’s sleep; standard amount of time spent to pass CPA, etc). Variance is the difference between the actual and the standard (Favorable variance vs. unfavorable variance).
III. Standard cost
To establish the standard cost of producing a product, it is necessary to establish standards for each manufacturing cost element— direct materials, direct labor, and manufacturing overhead
IV. Formula Standard Cost = standard Q * Standard P (1)
Total variance = total actual cost – total standard cost (2)
DM variance = DM price variance + DM quantity variance (3)
DL variance =
MOH variance =
Example 1:
Xonic Beverage company uses standard costs to measure performance at the production facility of its caffeinated energy drink, Xonic Tonic (XT). The standard direct materials price per pound is $3.00 (which includes cost of the direct material, the freight cost and the cost of receiving and handling); The standard direct materials quantity per gallon of XT is 4 pounds (this takes into account the waste, and spoilage). The standard direct labor rate per hour is $15 (including: hourly wage rate, payroll taxes and fringe benefits); the standard direct labor hours per gallon of XT is 2 hours; Xonic Tonic company uses standard direct labor hours as the activity base to allocate overhead costs. The standard predetermined overhead rate is $5 per direct labor hour.
Assume that in the month of June, Xonic needs to