Standard costing and variance analysis
practice of substituting unexpected cost for an actual cost in the accounting records
standard costing
involves the creation of estimated costs for some or all activities within a company
standard costing
advantage
highly dependent on standard costs
budgeting
advantage
for computing the inventory even before the completion
inventory costing
advantage
allocation
overhead application
advantage
without waiting for actual manufacturing cost
price formulation
disadvantage
highly dependent on actual cost
cost-plus contracts
disadvantage
incur costs and expenses
drives inappropriate activities
disadvantage
factors or changes beyond our control
fast-paced environment
disadvantage
performance evaluation is performed with actual costs
slow feedback
disadvantage
weakness of decision making for the entire company
unit level information
The difference between the actual cost incurred and the standard cost against which it is measured
variance
The cost variance when actual is greater than standard
unfavorable
The cost variance when actual is lesser than standard
favorable
a variance can also be used to measure the difference between actual and expected sales
seles variance
can be used to review the performance of both revenue and expenses
variance analysis
The difference between actual revenue and flexible budget revenue
revenue variance
The difference between actual cause and flexible budget cost
cost variance
it is intended to measure effectiveness and efficiency
it is a tool management used for performance evaluation
standard costing/ variance analysis
there is no variance no journal entries
variable costing
attainment of desired goals
effectiveness
proper utilization of input component
efficiency
are analyzed to determine corrective actions and to improve operational efficiency
production variance
production variance are analyzed to determine corrective actions and to improve the operational efficiency
analysis of variance
deviation from budgeted hours available against standard hours allowed/actual consumption attained
production volume variance
treatment of variances if insignificant
close to cost of goods sold
treatment of variance if significant
closed to work in process beginning, cost of goods sold finish goods, beginning
management's prorogative in significant
depends on company policy
deviation from actual price or rate against standard price or rate
price Factor
input-price variance
rate variance
actual less budget fixed ( 😔)
price variance
budget fixed less standard fixed (😃)
quantity variance
deviation from actual consumption of input components against what standard/ budget allowance
quantity factor
known as usage or efficiency variable
physical factor
it occur if a company uses a combination of raw materials or labor
mix and yield variances
unfavorable variances are
favorable variances are
debited
credited
variances are closed to cost of goods sold if
insignificant
variances are closed to cost of goods sold, finished goods, and work in process if
significant
cost of good sold recognized at the point of sale is based on
standard
cost of good sold will be adjusted to actual only when all variances are
closed
are the primary source of formulas used in variance analysis
journal entries
The quantity are efficiency variance can be divided into mix and yield variance if a company uses more than one raw material or combination of workers to finish a product
mixed and yield
deviation from the standard combination of raw materials or labor
mix variance
division from expected output of input component
yield variance
refers to the difference between actual overhead and applied overhead you can only compute overhead variance after you know the actual overhead cost for the period
factory overhead variance
four way analysis
variable spending
variable efficiency
fixed spending
volume capacity variance
three way analysis
spending variance
variable efficiency variance
capacity or volume
two way analysis
controllable variance
volume / capacity
prepared before the period begins and is valid for only The planned level of activity
planning budget
basis from which actual results are compared. resulting variance are cold
static budget
estimate of what revenues and costs should have been,
given the actual level of activity for the period
flexible budget
difference between the results generated by a flexible budget model and actual results
flexible budget variance
difference between static and flexible budget
volume variances (revenue variance)