# 6 - Lecture 6 The Flexible Budget and Standard Costing Direct Materials and Direct Labor II Direct Materials Standards Price Standards Usage

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Lecture 6 The Flexible Budget and Standard Costing: Direct Materials and Direct Labor - II

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Direct Materials Standards Usage Standards Price Standards Use product design specifications. Use competitive bids for the quality and quantity desired .
The standard material cost for one unit of product is: standard quantity standard price for of material one unit of material required for one unit of product × Direct Materials Standards

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Efficiency Standards Rate Standards Use time and motion studies for each labor operation. Use wage surveys and labor contracts. Direct Labor Standards
The standard labor cost for one unit of product is: standard number standard wage rate of labor hours for one hour for one unit of product × Direct Labor Standards

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A General Model for Variance Analysis Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price Price or Rate Variance Usage or Efficiency Variance The total variance is the flexible budget variance.
A General Model for Variance Analysis Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price Standard price is the amount that should have been paid for the resources acquired. Price or Rate Variance Usage or Efficiency Variance

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Price or Rate Variance Usage or Efficiency Variance A General Model for Variance Analysis Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price Standard quantity is the quantity allowed for the actual good output.
AQ(AP - SP) SP(AQ - SQ) AQ = Actual Quantity SP = Standard Price AP = Actual Price SQ = Standard Quantity A General Model for Variance Analysis A ctual Q uantity A ctual Q uantity S tandard Q uantity × × × A ctual P rice S tandard P rice S tandard P rice Price or Rate Variance Usage or Efficiency Variance

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Standard Cost Variances Standard Cost Variances Efficiency Variance Price Variance The difference between the actual price and the standard price The difference between the actual quantity and the standard quantity
Standard Costs Let’s use the concepts of the general model to calculate standard cost variances, starting with direct material.

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Hanson Inc. has the following direct
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## This note was uploaded on 01/16/2010 for the course AF AF 3112 taught by Professor Woo-jonglee during the Spring '08 term at Polytechnic University of Puerto Rico.

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6 - Lecture 6 The Flexible Budget and Standard Costing Direct Materials and Direct Labor II Direct Materials Standards Price Standards Usage

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