Standard Costing and Variance Analysis - Formulae

Material:
Material Cost Variance (MCV) =[standard material cost for actual production –actual
material cost]
Material Price Variance (MPV) = actual quantity * [standard price-actual price]
Material Quantity Variance (MQV) = standard price*[standard quantity for actual production
– actual quantity]
Material Mix Variance (MMV) = [actual mix – standard mix]*standard price
Material Yield Variance (MYV) = [actual yield-standard yield]*standard material cost per
unit of finished goods

Labor:
Labor Cost Variance (LCV) = [standard labor cost for actual production –actual labor cost]
Labor Rate Variance (LRV) = actual hours * [standard rate-actual rate]
Labor Efficiency Variance (LEV) = standard hours*[standard time for actual production –
actual time]
Labor Idle Time Variance (LITV) = Idle hours*standard rate per hour
Labor Mix Variance (LMV) = [actual mix – standard mix]*standard rate
Labor Yield Variance (LYV) = [actual yield-standard yield]*standard labor cost per unit of
finished goods

Overhead:
Variable Overhead Cost Variance (VOCV) = [(actual hours * actual variable OH rate)—
(standard hours * standard variable OH rate)]
Variable Overhead Spending Variance (VOSV) = [actual variable OH rate - standard variable
OH rate] * actual hours
Variable Overhead Efficiency Variance (VOEV) = [actual hours – standard hours] * standard
variable OH rate
Fixed Overhead Cost Variance (FOCV) = [(actual hours * actual fixed OH rate)—(standard
hours * standard fixed OH rate)]
Case-1:
Modern Tiles Ltd. manufactures ceramic tiles. For January 2017, it budgeted to purchase and
use 10,000 pounds of clay at $0.70 a pound. Actual purchases and usage for January 2017 were
11,000 pounds at $0.65 a pound. Modern Tiles Ltd. budgeted for 40,000 ceramic tiles. Actual
output was 43,000 ceramic tiles.

Required:
1. Compute the flexible-budget variance.
2. Compute the price and efficiency variances.
3. Comment on the results for requirements 1 and 2 and provide a possible explanation for
them.

Case – 2:
Consider the following data collected for Theta Homes, Inc.:

Direct Direct
Materials Manufacturing
Labor
Cost incurred: Actual inputs × actual prices $ 150,000 $100,000
Actual inputs × standard prices 162,000 95,000
Standard inputs allowed for actual output × 168,000 90,000
standard prices

Required:
Compute the price, efficiency, and flexible-budget variances for direct materials and direct
manufacturing labor.

Case - 3:
The following information are related to a fictitious Belgian chocolatier for the month of June.
The chocolatier manufactures truffles in 12-piece boxes. The production is labor intensive, and
the delicate nature of the chocolate requires a high degree of skill.
Actual
Boxes produced 12000
Direct materials used in production 2,640,000 g
Actual direct material cost 72,500 euro
Actual direct manufacturing labor-hours 1300
Actual direct manufacturing labor cost 15,360 euro

Standards
Purchase price of direct materials 0.029 euro/g
Materials per box 200 g
Wage rate 13 Euro/hr.
Boxes per hour 10

Calculate the materials efficiency and price variance and the wage and labor efficiency
variances for the month of June. Can you make any possible connection between the material
and labor variances?