Topic Outline
1 Setting-up standard costs
2 Variances
3 Journal entries
Theoretical 100,000
Practical 90,000
Normal 70,000
Expected 30,000
Variance
DMPV 20 F
DMQV 10 U
DLRV 20 F
DLEV 10 U
20 U
10 F
20 U
10 F
Actual Normal Standard
DM Actual Actual Standard
DL Actual Actual Standard
FOH Actual Applied Standard
The following data about Eros, Inc. is provided:
Standard costs
Direct materials 600,000 units of materials @ P2.00 each
Direct labor 60,000 hours allowed for actual output @ P7.00 per hour
Factory overhead P8.00/hr on normal capacity of 50,000 direct labor hours:
P6.00 for variable costs
P2.00 for fixed costs
Compute for the following variances:
1. Materials price
2. Materials usage
3. Rate variance
4. Labor efficiency rate
5. Spending variance for variable and fixed overhead
6. Efficiency variance for variable overhead
7. Flexible budget variance – fixed
8. Volume variance
POHR = Budgeted OH Cost
Budgeted Activity
2 = Budgeted OH Cost
50000
Budgeted OH Cost = 100000
DMPV =( AP - SP ) x
=( 1.90 - 2.00 ) x
Actual costs =( -0.10 ) x
700,000 units@ P1.90 = (70,000.00) F
65,000 hours @ P7.20
P396,000 variable DMQV =( AQ - SQ ) x
P130,000 fixed =( 700,000 - 600,000 ) x
=( 100,000 ) x
= 200,000.00 U
Net variance 130,000.00 U
AQ DLRV =( AP - SP ) x AQ
700,000 =( 7.20 - 7.00 ) x 65,000
700,000 =( 0.20 ) x 65,000
= 13,000.00 U
SP DLEV =( AQ - SQ ) x SP
2.00 =( 65,000 - 60,000 ) x 7.00
2.00 =( 5,000 ) x 7.00
= 35,000.00 U
48,000.00 U
DIRECT MATERIALS
Q P
Actual 700,000 1.90 1,330,000 AFOH
1,400,000 (70,000) F PV VOH
Standard 600,000 2.00 1,200,000 200,000 U QV Q A
130,000 U P A
DIRECT LABOR FOH
Q P Q A
Actual 65,000 7.20 468,000 P A
455,000 13,000 U PV - RV
Standard 60,000 7.00 420,000 35,000 U QV - EV
48,000 U
Total
MANUFACTURING OVERHEAD
AFOH B@AH B@SH
65,000 A 65,000 S 60,000
S 6 S 6
396,000 390,000 360,000
VSV 6,000 U EV 30,000 U
65,000
130,000 Budg. 100,000 Budg. 100,000
FSV 30,000 U -
526,000 490,000 460,000
SV 36,000 U
CV 66,000 U
Four-way
VSV 6,000 U
SHSR FSV 30,000 U
EV 30,000 U
S 60,000 VV (20,000) F
S 6 Net variance 46,000 U
360,000
- Three-way
SV 36,000 U
EV 30,000 U
VV (20,000) F
S 60,000 Net variance 46,000 U
S 2
120,000 Two-way
VV (20,000) F CV 66,000 U
NCV (20,000) F
Net variance 46,000 U
480,000
One-way
Actual 526,000
Standard (480,000)
NCV (20,000) F Net variance 46,000 U
JOURNAL ENTRIES
a. Raw materials inventory 1,400,000
Accounts payable 1,330,000
Direct material price variance 70,000 F
b. Work in process inventory 1,200,000
Direct material quantity variance 200,000 U
Raw materials inventory 1,400,000
c. Work in process inventory 420,000
Direct labor rate variance 13,000 U
Direct labor efficiency variance 35,000 U
Payroll 468,000
d. Work in process inventory 480,000
Variable spending variance 6,000
Fixed spending variance 30,000
Efficiency variance 30,000
Volume variance 20,000
Factory overhead 526,000
e. Finished goods inventory 2,100,000
Work in process inventory 2,100,000
f. Accounts receivables 4,000,000
Sales 4,000,000
g. Cost of goods sold 2,100,000
Finished goods inventory 2,100,000
h. Cost of goods sold 224,000
Direct material price variance 70,000 F
Volume variance 20,000 F
Direct material quantity variance 200,000
Direct labor rate variance 13,000
Direct labor efficiency variance 35,000
Variable spending variance 6,000
Fixed spending variance 30,000
Efficiency variance 30,000
Actual Standard
Direct materials 1,330,000 1,200,000
Direct labor 468,000 420,000
Factory overhead 526,000 480,000
Manufacturing costs 2,324,000 2,100,000
224,000
Cost of goods
2,100,000
224,000
2,324,000
