ACCT 2102 1nd Edition Lecture 17 Outline of Last Lecture II Segmented Income Statement III ROI and RI IV Flexible Budgets Outline of Current Lecture V Standard Price and Rates VI Variances VII Direct Materials Variances Current Lecture Standard Price and Rates A standard cost is a budget for a single unit of product They are used at the beginning of the period to help with the budgeting process They are also used at the end of the period to evaluate performance and help control future costs A direct material standard cost is equal to the standard quantity of DM output times the standard price of DM Overall this is trying to show how much we expect to use A direct labor standard rate is equal to the standard quantity of DL output times the standard rate of DL Variances The variances used in the previous chapter can be further broken down and each can be labeled unfavorable or favorable An unfavorable variance is positive for the sake of this chapter and is favorable if it is negative Price and rate variances represent what we paid versus what we expected to pay Quantity and Efficiency Variances represent how much we used versus what we expected to use Direct Material Variances These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute A Direct Material Price Variance is what we paid versus what we expected to pap and happens at the point of production It s formula is the quantity purchased times the actual price plus the quantity purchased plus the standard price A DM Quality Variance represents what we used versus what we expected to use and also happens at the point of production Its formula is the standard price times the quantity used and the quantity allowed Keep in mind that quantity allowed has its own formula and can be found by multiplying actual output times the input ratio Total DM variance has two formulas The first is simply adding the DM Price Variance to the DM Quality Variance but this can only be done is the quantity purchased equals the quantity used If not then you have to take quantity used times actual price plus quantity allowed times standard price