Name the Variance
What is the direct materials price variance?
The difference between the actual price and the standard price of direct materials multiplied by the actual quantity of direct materials used in producing a product.
What is the formula for direct materials quantity variance?
(Actual Quantity − Standard Quantity) × Standard Price
What are ideal standards?
Standards that can be achieved only under perfect operating conditions, such as no idle time, no machine breakdowns, and no materials spoilage; also called theoretical standards.
Standard price = $5
Actual price = $6
Actual quantity = 100 units
Calculate the direct materials price variance.
($6 − $5) × 100 = $100 Unfavorable
Material Price Variance
What are normal standards?
Standards that represent levels of operation that can be attained with reasonable effort. Also called currently attainable standards.
What is the direct materials quantity variance?
The difference between the actual quantity and the standard quantity of direct materials used in producing a product multiplied by the standard direct material price.
What is the formula for direct materials price variance?
(Actual Price − Standard Price) × Actual Quantity
What is a budget performance report?
A report that summarizes actual costs, standard costs, and the differences for the units produced.
Standard quantity = 120 units
Actual quantity = 100 units
Standard price = $5
Calculate the direct materials quantity variance.
(100 − 120) × $5 = $100 Favorable
Material Quantity Variance
Standard rate = $18/hour
Actual rate = $15/hour
Actual hours = 50
Calculate the direct labor rate variance.
($15 − $18) × 50 = $150 Favorable
Labor Rate Variance
What is the direct labor rate variance?
The difference between the actual rate and the standard rate paid for direct labor multiplied by the actual direct labor hours used in producing a product.
What is the formula for direct labor time variance?
(Actual Hours − Standard Hours) × Standard Rate
What is budgeted variable factory overhead?
The standard variable overhead for the actual units produced.
Standard rate = $20/hour
Actual rate = $16/hour
Actual hours = 40
Calculate the direct labor rate variance.
($16 − $20) × 40 = $160 Favorable
Labor Rate Variance
Why does an Unfavorable volume variance occur?
This variance occurs due to:
Machine breakdowns
Lack of enough sales order to keep normal capacity
work stoppages caused by lack of workers or skilled labor
What is controllable variance?
The difference between the actual variable overhead costs and the budgeted variable overhead for actual production.
What is the formula for direct labor rate variance?
(Actual Rate − Standard Rate) × Actual Hours
What are standard cost systems?
Accounting systems that use standards for each element of manufacturing cost entering into the finished product.
Standard hours = 40
Actual hours = 50
Standard rate = $20/hour
Calculate the direct labor time variance.
(50 − 40) × $20 = $200 Unfavorable
Labor Time Variance
What is revenue volume variance?
The difference between the planned and actual units sold multiplied by the planned sales price.
What is the total manufacturing cost variance?
The difference between total standard costs and total actual costs for the units produced.
What is the formula for fixed overhead volume variance?
(Budgeted Production − Actual Production) × Fixed Overhead Rate per Unit
What is a factory overhead cost variance report?
A report that summarizes budgeted and actual costs for variable and fixed factory overhead along with the related controllable and volume variances.
Budgeted production = 1,000 units
Actual production = 800 units
Fixed overhead rate = $3 per unit
Calculate the volume variance.
(1,000 − 800) × $3 = $600 Unfavorable
Volume Variance
Standard price = $50 per unit
Actual price = $45 per unit
Actual quantity sold = 200 units
Calculate the revenue price variance.
($45 − $50) × 200 = $1,000 Unfavorable
Revenue Price Variance