COLLEGE OF BUSINESS EDUCATION

S.Y. 2021 – 2022

ACCTG 202 – STRATEGIC COST MANAGEMENT

ANSWER KEY ON CHAPTER 7

STANDARD COSTING

Actual Costing - M, L & OH are measured at actual cost

Normal Costing - M & L measured at actual cost

- FOH is measured at Applied FOH Rate

Standard Costing - M, L & OH measured at standard costs

NOTE:
Normal Capacity - basis for Fixed Overhead Rate
If normal capacity is not given, use budgeted capacity.

Standard Capacity = Actual Production x Standard Quantity/unit

MATERIALS COST VARIANCES:

1-WAY ANALYSIS
Price Quantity Total
Actual 3.90 525,000 2,047,500
Standard 4.00 520,000 2,080,000
Variance -0.10 5,000 (32,500) F

Standard Capacity = Actual Production x Standard lbs/unit

= 130,000 x 4 lbs/unit
= 520,000

2-WAY ANALYSIS
AP 3.90
-SP 4.00
Diff in Price -0.10 F
x AQ Used 525,000
Price Variance - 52,500 F

AQ 525,000
-SQ 520,000
Diff in Quantity 5,000 UF
x SP 4.00
Quantity Variance 20,000 UF

Total Materials Variance -32,500 F

Price Variance based on quantity purchased- if silent

AP 3.90
-SP 4.00
Diff in Price -0.10 F
x AQ purchased 580,000
Purchase Price Variance - 58,000 F

Page 1 of 5
LABOR COST VARIANCES:

1-WAY ANALYSIS
Rate Hours Total
Actual 8.15 380,000 3,097,000
Standard 8.00 390,000 3,120,000
Variance 0.15 -10,000 (23,000) F

Standard Capacity = Actual Production x Standard hrs/unit

= 130,000 x 3 hrs/unit
= 390,000

2-WAY ANALYSIS
AR 8.15
-SR 8.00
Diff in Rate 0.15 UF
x AH 380,000
Rate Variance 57,000 UF

AH 380,000
-SH 390,000
Diff in Hours -10,000 F
x SR 8.00
Efficiency Variance -80,000 F

Total Labor Cost Variance -23,000 F

FACTORY OVERHEAD COST ANALYSIS:

1-WAY ANALYSIS
Variable Fixed TOTAL
Actual 798,000 1,250,000 2,048,000
Less: Standard 780,000 1,170,000 1,950,000
Variance 18,000 80,000 98,000
UF UF UF

2-WAY ANALYSIS (CONVO)

AFOH
Actual Var. OH 798,000
Actual Fx OH 1,250,000 2,048,000
53,000 UF Controllable Variance
BASH
Budgeted Fx OH:
(405,000 hrs x 3) 1,215,000
Variable OH based on SH
(390,000 hrs x 2) 780,000 1,995,000
45,000 UF Volume Variance
SHxSR
390,000 hrs x 5 1,950,000

TOTAL FOH VARIANCE 98,000 UF

3-WAY ANALYSIS (SEV)

AFOH
Actual Var. OH 798,000
Actual Fx OH 1,250,000 2,048,000

BAAH
Budgeted Fx OH: 73,000 UF Spending Variance
(405,000 hrs x 3) 1,215,000
Page 2 of 5
Variable OH based on AH:
(380,000 hrs x 2) 760,000 1,975,000
 TOTAL FOH VARIANCE 98,000 UF

3-WAY ANALYSIS (SEV)

AFOH
Actual Var. OH 798,000
Actual Fx OH 1,250,000 2,048,000

BAAH
Budgeted Fx OH: 73,000 UF Spending Variance
(405,000 hrs x 3) 1,215,000
Variable OH based on AH:
(380,000 hrs x 2) 760,000 1,975,000

BASH
Budgeted Fx OH:
(405,000 hrs x 3) 1,215,000 (20,000) F Variable Effiency Variance
Variable OH based on SH
(390,000 hrs x 2) 780,000 1,995,000

SHxSR 45,000 UF Volume Variance

390,000 hrs x 5 1,950,000

TOTAL FOH VARIANCE 98,000 UF

4-WAY ANALYSIS

Spending Variances:
Actual Fx OH 1,250,000
Less: Budgeted Fx OH
(405,000 hrs x 3) 1,215,000 35,000 UF Fixed Spending Variance

Actual Var. OH 798,000

Less: Variable OH based on AH
(380,000 hrs x 2) 760,000 38,000 UF Variable Spending Variance

BAAH 1,975,000

BASH
Budgeted Fx OH:
(405,000 hrs x 3) 1,215,000 (20,000) F Variable Effiency Variance
Variable based on SH
(390,000 hrs x 2) 780,000 1,995,000

SHxSR 45,000 UF Volume Variance

390,000 hrs x 5 1,950,000

TOTAL 98,000 UF

5-WAY ANALYSIS

Spending Variance:
Actual Fx OH 1,250,000
Less: Budgeted Fx OH
(405,000 hrs x 3) 1,215,000 35,000 UF Fx Spending Variance

Actual Var. OH 798,000

Less: Variable based on AH
(380,000 hrs x 2) 760,000 38,000 UF Var. Spending Variance

BAAH 1,975,000

BASH
Budgeted Fx OH:
(405,000 hrs x 3) 1,215,000 (20,000) F Variable Effiency Variance
Variable based on SH
(390,000 hrs x 2) 780,000 1,995,000

Budgeted Fx OH 1,215,000

AH x SR ---> Fixed OH Rate

(380,000 x 3) 1,140,000 75,000 UF Capacity Variance

AH x SR
(380,000 x 3) 1,140,000

SHx SR ---> Fixed OH Rate

(390,000 x 3) 1,170,000 (30,000) F Fixed Efficiency Variance

98,000 UF

Page 3 of 5
ALTERNATIVE FORMULAS:

Bugeted Hours 405,000

Actual Hours 380,000
Difference 25,000 x 3 75,000 Capacity Variance

Actual Hours 380,000

Standard Hours 390,000
Difference -10,000 x 3 (30,000) Fixed Efficiency Variance

Difference -10,000 x 2 (20,000) Variable Efficiency Variance

Budgeted Hours 405,000

Standard Hours 390,000
Difference 15,000 x 3 45,000 Volume Variance

MATERIAL PRICE, MIX & YIELD VARIANCES

AI @ AP
Actual
Materials x Actual Price Total
Input
A 18,000 x 10.20 183,600
B 19,000 x 4.90 93,100
C 5,000 x 8.05 40,250
Total 42,000 lbs 316,950

AI @ SP
Actual Standard
Materials x Total
Input Price
A 18,000 x 10.00 180,000
B 19,000 x 5.00 95,000
C 5,000 x 8.00 40,000
Total 42,000 lbs 315,000 1,950 UF Price Variance

AI @ SIC
Standard
Total Actual Input x
Input Cost
42, 000 lbs x 7.30 306,600 8,400 UF Mix Variance

AO @ SOC
Standard
Actual Output x
Output Cost
16,000 units x 18.25 292,000 14,600 UF Yield Variance

24,950 UF

SIC = Total Standard Costs

Standard Input
= 7,300
1,000 lbs
= 7.30

SOC = Total Standard Costs

Standard Output
= 7,300
400 units
= 18.25

Page 4 of 5
DISPOSITION OF VARIANCES

Normal Variance: closed to COGS

UF Variance add to COGS
F Variance deducted from COGS

Example:
Exceptional Variances: Materials Variance 50,000
Materials Variances allocated to Costs Ratio Allocation
(1) Materials Inventory 100,000 1/10 5,000
(2) WIP Inventory 200,000 2/10 10,000
(3) FG Inventory 400,000 4/10 20,000
(4) COGS 300,000 3/10 15,000
1,000,000 50,000

Labor & FOH Variances allocated to

(1) WIP Inventory
(2) FG Inventory
(3) COGS

Abnormal Cost Variances:

Under IFRS (IAS 2) charged directly as Expense

(1) NORMAL VARIANCE

COGS 3,000,000
MPV 20,000 UF
MQV -30,000 F
LRV -5,000 F
LEV 34,000 UF
FOH Con V 25,000 UF
FOH Vol V -60,000 F
2,984,000

Page 5 of 5