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Variance AnalysisVariance AnalysisChapter 8
Material CostsMaterial Costs
Total Quantity X price
Total Quantity =good units X Standard Qty per unit
Labor CostsLabor Costs
Total Hours X Rate per hr
Good units X hours per unit = total hrs
Material VariancesMaterial VariancesPrice VarianceQuantity Variance
Favorable variance is positive number
Unfavorable variance is a negative num.
Price VariancePrice VarianceDifference in Price X Actual
Quantity
Difference in Price is:◦Standard Price – Actual Price
Actual Price is Total Cost/Quantity
Quantity VarianceQuantity VarianceDifference in Quantity X Standard
Price
Difference in Quantity◦Standard Quantity – Actual Quantity
◦Exercise 8-4 Page 368◦Worksheet
Direct Labor VariancesDirect Labor VariancesRate VariancesEfficiency (Hours) Variance
Rate VariancesRate VariancesDifference in rate X Actual hours
Difference is Standard Rate – Actual Rate
Efficiency VarianceEfficiency VarianceDifference in hours x Standard
rateDifference = Standard hour from
Actual Hours
Exercise 8-5 Page 368
TruismsTruismsLower Price – Lower Quality-
more quantity – more hoursHigher price-higher quality-less
quantity-less hoursHigher skilled labor-requires less
hours-higher rateLower skill labor-requires more
hours-lower rate
Other reasons for Other reasons for variancesvariancesQuantity DiscountQuality better or worseStandard do not reflect current
changes
Exercise 8-17 pg 372 Exercise 8-17 pg 372 Material and Labor VarianceApplication of Truisms
