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Lecture Advanced management accounting - Chapter 17

This chapter introduces students to activity-based costing (ABC), which is a tool that has been embraced by a wide variety of service, manufacturing, and non-profit organizations. After studying chapter 7, you should be able to: Understand activity-based costing and how it differs from a traditional costing system, assign costs to cost pools using a first-stage allocation, compute activity rates for cost pools. | Lecture 17: Direct Cost Variance and Management Control (Continued) Glacier Peak Outfitters has the following direct labor standard for its mountain parka. 1.2 standard hours per parka at $10.00 per hour Last month, employees actually worked 2,500 hours at a total labor cost of $26,250 to make 2,000 parkas. Labor Variances Example 2 10-2 2 Now let’s turn our attention back to Glacier Peak Outfitters to illustrate the computation of labor rate and efficiency variances. 2,500 hours 2,500 hours 2,400 hours × × × $10.50 per hour $10.00 per hour. $10.00 per hour = $26,250 = $25,000 = $24,000 Rate variance $1,250 unfavorable Efficiency variance $1,000 unfavorable Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate Labor Variances Summary 3 10-3 3 The labor rate variance, defined as the difference between the actual average hourly wage paid and the standard hourly wage, is $1,250 unfavorable. The rate variance is labeled unfavorable because the actual average wage rate was more than the standard wage rate by $0.50 per hour. The labor efficiency variance, defined as the difference between the actual quantity of labor hours and the quantity allowed according to the standard, is $1,000 unfavorable. The efficiency variance is labeled unfavorable because the actual quantity of hours exceeds the standard quantity allowed by 100 hours. Labor Variances Summary 2,500 hours 2,500 hours 2,400 hours × × × $10.50 per hour $10.00 per hour. $10.00 per hour = $26,250 = $25,000 = $24,000 Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate $26,250 2,500 hours = $10.50 per hour Rate variance $1,250 unfavorable Efficiency variance $1,000 unfavorable 4 10-4 4 The actual price (or rate) of $10.50 per hour is computed by dividing the actual total cost for labor by the actual number of hours worked. Labor Variances Summary 2,500 hours 2,500 hours 2,400 hours × × × $10.50 per hour $10.00 per hour. $10.00 per hour = . | Lecture 17: Direct Cost Variance and Management Control (Continued) Glacier Peak Outfitters has the following direct labor standard for its mountain parka. 1.2 standard hours per parka at $10.00 per hour Last month, employees actually worked 2,500 hours at a total labor cost of $26,250 to make 2,000 parkas. Labor Variances Example 2 10-2 2 Now let’s turn our attention back to Glacier Peak Outfitters to illustrate the computation of labor rate and efficiency variances. 2,500 hours 2,500 hours 2,400 hours × × × $10.50 per hour $10.00 per hour. $10.00 per hour = $26,250 = $25,000 = $24,000 Rate variance $1,250 unfavorable Efficiency variance $1,000 unfavorable Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate Labor Variances Summary 3 10-3 3 The labor rate variance, defined as the difference between the actual average hourly wage paid and the standard hourly wage, is $1,250 unfavorable. The rate variance is labeled unfavorable because the actual .