Ideal Standards
Are standards that can be achieved only under perfect operating conditions
What are theoretical standards?
Ideal standards
What are examples of ideal standards?
No idle time
No machine breakdowns
No materials spoilage
What impact do ideal standards have?
Negative impacts on performance� seen as unrealistic
Currently attainable standards
Are standards that can be attained with reasonable effort
What do current attainable standards allow?
They allow for normal production difficulties and mistakes
What are normal standards?
Currently attainable standards
Budget performance report
Summarizes actual costs, standard costs, and the differences for the units produced
Cost variances
The differences between actual and standard costs
Favorable cost variance
Actual cost < Standard cost
Unfavorable cost variance
Actual cost > Standard cost
Total manufacturing cost variance
The difference between total standard costs and total actual cost for the units produced
What do the total manufacturing cost variance consist of?
DM cost variance
DL cost variance
FOH cost variance
[Exhibit 3-pg.1066]
What does DM cost variance consist of?
DM price variance
DM quantity variance
What does DL cost variance consists of?
DL rate variance
DL time variance
What does FOH cost variance consists of?
Variable FOH controllable variance
Fixed FOH volume variance
How do you calculate actual DM cost?
Actual price x Actual quantity
How do you calculate standard DM cost?
Standard price x Standard quantity
DM price variance
(Actual price - Standard price) x Actual quantity
What makes DM price variance UNFAVORABLE ?
Actual price per unit exceeds the standard price per unit
The positive amount is increasing costs (a debit)
What makes DM price variance FAVORABLE ?
Actual price per unit is less than the standard price per unit
The negative amount is decreasing costs (a credit)
DM quantity variance
(Actual quantity - Standard quantity) x Standard price
What makes DM quantity variance UNFAVORABLE ?
Actual quantity for the units produced exceeds the standard quantity
The positive amount is increasing costs (a debit)
What makes DM quantity variance FAVORABLE ?
Actual quantity for the units produced is less than the standard quantity
The negative amount is decreasing costs (a credit)
DL rate variance
(Actual rate per hour - Standard rate per hour) x Actual hours
What makes DL rate variance UNFAVORABLE?
Actual rate per hour exceeds the standard rate per hour
Positive amount increases costs (a debit)
What makes DL rate variance FAVORABLE?
Actual rate per hour is less than the standard rate per hour
Negative amount decreases cost (a credit)
DL time variance
(Actual direct labor hours - standard direct labor hours) x Standard rate per hour
What makes DL time variance UNFAVORABLE?
Actual direct labor hours for the units produced exceeds the standard direct labor hours
Positive amount increases costs (a debit)
What makes DL time variance FAVORABLE?
Actual direct labor hours for the units produced is less than the standard direct labor hours
Negative amount decreases cost (a credit)
What does FOH variance consist of?
Fixed and variable cost elements
Budgeted FOH rate
Budgeted FOH at normal capacity / Normal productive capacity
What is the normal productive capacity expressed in terms?
Activity base - for example, DL hours, DL cost or machine hours
How is the Budgeted FOH rate subdivided into?
Variable FOH rate and fixed FOH rate
Variable FOH rate
Budgeted variable overhead at normal capacity / Normal productive capacity
How are the FOH variances can be separated into?
1) Controllable variance
2) Volume variance
Variable FOH controllable variance
Actual variable FOH - Budgeted variable FOH
What makes actual variable overhead FAVORABLE?
Actual variable overhead is less than the budgeted variable overhead
What makes actual variable overhead UNFAVORABLE?
Actual variable overhead exceeds the budgeted variable overhead
Budgeted variable FOH
Standard variable overhead for the actual units produced
How is the budgeted variable FOH computed?
Standard hours for actual units produced x Variable FOH rate