WEEK 9
STANDARD COSTING VARIANCE ANALYSIS
Purpose
ofvarianceanalysis
Compare actualresults with standard budgeted
Identifyinefficiencies
Understandcauses
Takecorrectiveaction
standard costs
Standards benchmarks
for
Prices rates
Quantities hours
Twotypes
1 Pricestandards e.g 4perkgofDM
2 Quantitystandards e.g 0.1kgperunit
Total spending Variance
Actualcost Flexible budgetcost
Brokeninto
PriceVariance
QuantityVariance
Direct Material Variances
1 Material Price Variance MPV
MPV ActualQuantity Actualprice standardprice
2 Material Quantity Variance MOV
MOV StandardQuantity x Actualquantity standardquantityallowed
Responsibility assignment
Price variance Purchasing manager
Quantityvariance productionmanager
, Direct Labour Variances
1 LabourRate Variance
Actual hours ActualRate standard rate
2 LabourEfficiency Variance
standard hours Actualhours standardhoursallowed
Causes
hiringinexperiencedworkers poorscheduling poorlymaintainedequipment
VariableOverhead Variances
1 Spending Variances
Actualhours ActualVOHrate standardrate
2 Efficiency Variances
standard rate x Actual LH Standard H
FixedOverhead Variances
1 Budget SpendingVariance
ActualFOH BudgetedFOH
Occurs
iffixedoverheadcostdiffersfromplanned
2 VolumeVariance
standardhoursallowed Denominatorhours fixedoverheadrate
Measuresunder or over utilization of capacity
Interpretation
Favourable produced morethanexpected
Unfavourable plantcapacity
underutilized
STANDARD COSTING VARIANCE ANALYSIS
Purpose
ofvarianceanalysis
Compare actualresults with standard budgeted
Identifyinefficiencies
Understandcauses
Takecorrectiveaction
standard costs
Standards benchmarks
for
Prices rates
Quantities hours
Twotypes
1 Pricestandards e.g 4perkgofDM
2 Quantitystandards e.g 0.1kgperunit
Total spending Variance
Actualcost Flexible budgetcost
Brokeninto
PriceVariance
QuantityVariance
Direct Material Variances
1 Material Price Variance MPV
MPV ActualQuantity Actualprice standardprice
2 Material Quantity Variance MOV
MOV StandardQuantity x Actualquantity standardquantityallowed
Responsibility assignment
Price variance Purchasing manager
Quantityvariance productionmanager
, Direct Labour Variances
1 LabourRate Variance
Actual hours ActualRate standard rate
2 LabourEfficiency Variance
standard hours Actualhours standardhoursallowed
Causes
hiringinexperiencedworkers poorscheduling poorlymaintainedequipment
VariableOverhead Variances
1 Spending Variances
Actualhours ActualVOHrate standardrate
2 Efficiency Variances
standard rate x Actual LH Standard H
FixedOverhead Variances
1 Budget SpendingVariance
ActualFOH BudgetedFOH
Occurs
iffixedoverheadcostdiffersfromplanned
2 VolumeVariance
standardhoursallowed Denominatorhours fixedoverheadrate
Measuresunder or over utilization of capacity
Interpretation
Favourable produced morethanexpected
Unfavourable plantcapacity
underutilized
