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Chapter 23: Q10RQ (page 1305)

Question:Give the general formulas for determining cost and efficiency variances.

Short Answer

Expert verified

Answer

The general formulae for cost variance are given by theproduct of actual quantity and the difference between actual cost and standard cost. The general formulae for efficiency variance are given by the product of standard quantity and the variation among actual quantity and standard quantity.

Step by step solution

01

General formula for determining cost variances

The cost variances are computed by using the following formulae

CostVariance=ActualCost脳ActualQuantity-StandardCost脳ActualQuantity=Actualcost-Standardcost脳ActualQuantity=AC-SC脳AQ

02

General formula for determining efficiency variances

The efficiency variances are computed by using the following formulae

CostVariance=StandardCost脳ActualQuantity-StandardCost脳StandardQuantity=Actualcost-Standardcost脳StandardCost=AQ-SQ脳SC

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Most popular questions from this chapter

Question: List the variable overhead variances, and briefly describe each

McCarthy Fender, which uses a standard cost system, manufactured 20,000 boat fenders during 2018. The 2018 revenue and cost information for McCarthy follows:

Sales Revenue \( 1,300,000

Cost of Goods Sold (at standard) 196,800

Direct materials cost variance 7,150 F

Direct materials efficiency variance 5,950 U

Direct labor cost variance 400 U

Direct labor efficiency variance 530 F

Variable overhead cost variance 650 U

Variable overhead efficiency variance 360 F

Fixed overhead cost variance 2,350 U

Fixed overhead volume variance 4,410 U

Assume each fender produced was sold for the standard price of \)65, and total selling and administrative costs were $250,000. Prepare a standard cost income statement for 2018 for McCarthy Fender

Question:What is a standard cost income statement?

Computing overhead variances

Refer to the Morgan, Inc. data in Short Exercise S23颅9. Last month, Morgan reported the following actual results: actual variable overhead, \(10,800; actual fixed overhead, \)2,770; actual production of 7,000 units at 0.20 direct labor hours per unit. The standard direct labor time is 0.25 direct labor hours per unit (1,300 static direct labor hours / 5,200 static units).

Requirements

1. Compute the overhead variances for the month: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance.

2. Explain why the variances are favorable or unfavorable.

Matching terms

Match each term to the correct definition.

Terms Definitions

a. Benchmarking

b. Efficiency variance

c. Cost variance

d. Standard

1. Measures whether the quantity of materials or laborused to make the actual number of outputs is within thestandard allowed for the number of outputs.

2. Uses standards based on best practice.

3. Measures how well the business keeps unit costs ofmaterials and labor inputs within standards.

4. A price, cost, or quantity that is expected under normalconditions.
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