CHAPTER 11 Standard Costs and Balanced Scorecard ASSIGNMENT CLASSIFICATION TABLE Brief Study Objectives A Questions Exercises Exercises Distinguish between a standard and a budget 1, 2 Identify the advantages of standard costs 3 Describe how companies set standards 4, 5, 6, 7, 8, 2, 1, 2, 3, 4, 16, 18 State the formulas for determining direct materials and direct labor variances 10, 11 4, 5 State the formula for determining the total manufacturing overhead variance 12 6 Discuss the reporting of variances B Problems Problems 4, 5, 6, 7, 8, 9, 12, 13, 18 1A, 2A, 3A, 4A, 5A, 6A 1B, 2B, 3B, 4B, 5B, 6B 10, 11, 18 1A, 2A, 3A, 4A, 5A, 6A 1B, 2B, 3B, 4B, 5B, 6B 13, 14 9, 13, 14 3A 3B Prepare an income statement for management under a standard costing system 18 15 2A, 5A, 6A 2B, 5B, 6B Describe the balanced scorecard approach to performance evaluation 15, 16, 17 16 *9 Identify the features of a standard cost accounting system 19 8, 17, 18, 19 6A 6B 20, 21, 22, 23 10, 11 20, 21, 22 7A, 8A, 9A, 10A 7B, 8B, 9B, 10B *10 Compute overhead controllable and volume variances 1 11-1 ASSIGNMENT CHARACTERISTICS TABLE Problem Number Description Difficulty Level Time Allotted (min.) 1A Compute variances Simple 20–30 2A Compute variances, and prepare income statement Simple 30–40 3A Compute and identify significant variances Moderate 20–30 4A Answer questions about variances Complex 30–40 5A Compute variances, prepare an income statement, and explain unfavorable variances Moderate 30–40 *6A Journalize and post standard cost entries, and prepare income statement Moderate 40–50 *7A Compute overhead controllable and volume variances Simple 10–15 *8A Compute overhead controllable and volume variances Simple 10–15 *9A Compute overhead controllable and volume variances Moderate 10–15 *10A Compute overhead controllable and volume variances Moderate 10–15 1B Compute variances Simple 20–30 2B Compute variances, and prepare income statement Simple 30–40 3B Compute and identify significant variances Moderate 30–40 4B Answer questions about variances Complex 30–40 5B Compute variances, prepare an income statement, and explain unfavorable variances Moderate 30–40 *6B Journalize and post standard cost entries, and prepare income statement Moderate 40–50 *7B Compute overhead controllable and volume variances Simple 10–15 *8B Compute overhead controllable and volume variances Simple 10–15 *9B Compute overhead controllable and volume variances Moderate 10–15 *10B Compute overhead controllable and volume variances Moderate 10–15 11-2 11-3 Describe how companies set standards State the formulas for determining direct materials and direct labor variances State the formula for determining the total manufacturing overhead variance Discuss the reporting of variances Prepare an income statement for management under a standard costing system Describe the balanced scorecard approach to performance evaluation Identify the features of a standard cost accounting system *9 Broadening Your Perspective Compute overhead controllable and volume variances Identify the advantages of standard costs *10 Distinguish between a standard and a budget Study Objective Q11-10 Q11-11 Q11-8 Q11-3 P11-1A P11-2A P11-5A P11-6A E11-9 E11-12 E11-13 P11-1A P11-2A P11-5A P11-6B P11-6B E11-14 P11-1B P11-2B P11-5B P11-6B P11-6A P11-1B P11-2B P11-5B P11-6B E11-18 P11-3A P11-3B E11-10 P11-4A E11-11 P11-3B E11-18 P11-4B P11-3A E11-8 E11-18 P11-3A P11-4A P11-3B P11-4B Analysis BE11-10 P11-7A P11-8B E11-20 BE11-11 P11-8A P11-9B E11-21 E11-20 P11-9A P11-10B E11-22 E11-21 P11-10A E11-22 P11-7B BE11-8 E11-18 BE11-9 E11-19 E11-17 P11-6A BE11-7 E11-16 E11-15 P11-6A P11-2A P11-2B P11-5A P11-5B E11-9 E11-13 BE11-6 E11-10 E11-11 E11-18 BE11-4 BE11-5 E11-4 E11-5 E11-6 E11-7 E11-16 Application Q11-7 BE11-2 E11-2 Q11-9 BE11-3 E11-3 E11-18 E11-1 E11-4 E11-1 BE11-1 E11-1 Communication Managerial Analysis Exploring the Web Q11-20 Q11-21 Q11-22 Q11-23 Q11-19 Q11-15 Q11-16 Q11-17 Q11-18 Q11-13 Q11-14 Q11-12 Q11-14 Q11-4 Q11-5 Q11-6 Q11-1 Q11-2 Knowledge Comprehension Synthesis Decision Making Across the Organization Ethics Case Real-World Focus All About You Evaluation Correlation Chart between Bloom’s Taxonomy, Study Objectives and End-of-Chapter Exercises and Problems BLOOM’S TAXONOMY TABLE STUDY OBJECTIVES DISTINGUISH BETWEEN A STANDARD AND A BUDGET IDENTIFY THE ADVANTAGES OF STANDARD COSTS DESCRIBE HOW COMPANIES SET STANDARDS STATE THE FORMULAS FOR DETERMINING DIRECT MATERIALS AND DIRECT LABOR VARIANCES STATE THE FORMULA FOR DETERMINING THE TOTAL MANUFACTURING OVERHEAD VARIANCE DISCUSS THE REPORTING OF VARIANCES PREPARE AN INCOME STATEMENT FOR MANAGEMENT UNDER A STANDARD COSTING SYSTEM DESCRIBE THE BALANCED SCORECARD APPROACH TO PERFORMANCE EVALUATION *9 IDENTIFY THE FEATURES OF A STANDARD COST ACCOUNTING SYSTEM *10 COMPUTE OVERHEAD CONTROLLABLE AND VOLUME VARIANCES 11-4 CHAPTER REVIEW Standards and Budgets (S.O 1) In concept, standards and budgets are essentially the same Both are predetermined costs and both contribute significantly to management planning and control a A standard is a unit amount, whereas a budget is a total amount b Standard costs may be incorporated into a cost accounting system Why Standard Costs? (S.O 2) Standard costs offer the following advantages to an organization: a They facilitate management planning b They promote greater economy by making employees more “cost conscious.” c They are useful in setting selling prices d They contribute to management control by providing a basis for the evaluation of cost control e They are useful in highlighting variances in management by exception f They simplify the costing of inventories and reduce clerical costs Setting Standard Costs (S.O 3) Setting standards requires input from all persons who have responsibility for costs and quantities Standards may be set at one of two levels Ideal standards represent optimum levels of performance under perfect operating conditions Normal standards represent efficient levels of performance that are attainable under expected operating conditions To establish the standard cost of producing a product, it is necessary to establish standards for each manufacturing cost element—direct materials, direct labor, and manufacturing overhead The standard for each element is derived from a consideration of the standard price to be paid and the standard quantity to be used Direct Materials The direct materials price standard is the cost per unit of direct materials that should be incurred a This standard is based on the purchasing departments best estimate of the cost of raw materials b This standard should include an amount for related costs such as receiving, storing, and handling The direct materials quantity standard is the quantity of direct materials that should be used per unit of finished goods a This standard is expressed as a physical measure, such as pounds, barrels, or board feet b This standard should include allowances of unavoidable waste and normal storage The standard direct materials cost per unit is the standard direct materials price times the standard direct materials quantity 11-5 Direct Labor The direct labor price standard is the rate per hour that should be incurred for direct labor a This standard is based on current wage rates adjusted for anticipated changes, such as cost of living adjustments included in many union contracts b This standard generally includes employer payroll taxes and fringe benefits The direct labor quantity standard is the time that should be required to make one unit of the product a This standard is especially critical in labor-intensive companies b In setting this standard, allowances should be made for rest periods, cleanup, machine setup and machine downtime 10 The standard direct labor cost per unit is the standard direct labor rate times the standard direct labor hours Manufacturing Overhead 11 The manufacturing overhead standard is based on a standard predetermined overhead rate a This overhead rate is determined by dividing budgeted overhead costs by an expected standard activity index b The standard manufacturing overhead rate per unit is the predetermined overhead rate times the activity index quantity standard Variances 12 A variance is the difference between total actual costs and total standard costs An unfavorable variance suggests that too much was paid for materials, labor, and manufacturing overhead or that there were inefficiencies in using materials, labor, and manufacturing overhead Favorable variances indicate efficiencies in incurring costs and in using materials, labor, and manufacturing overhead 13 Analyzing variances begins with a determination of the cost elements that comprise the variance For each manufacturing cost element, a total dollar variance is computed Then this variance is analyzed into a price variance and a quantity variance Direct Materials Variances 14 (S.O 4) The formulas for the direct materials variances are: Actual Quantity X Actual Price (AQ) X (AP) – Standard Quantity X Standard Price (SQ) X (SP) = Total Materials Variance (TMV) Actual Quantity X Actual Price (AQ) X (AP) – Actual Quantity X Standard Price (AQ) X (SP) = Materials Price Variance (MPV) Actual Quantity X Standard Price (AQ) X (SP) – Standard Quantity X Standard Price (SQ) X (SP) = Materials Quantity Variance (MQV) 11-6 15 A variance matrix can be used in analyzing variances In such cases, the formulas for each cost element are computed first and then the variances 16 Materials price variances are usually the responsibility of the purchasing department, whereas materials quantity variances are usually attributable to the production department Direct Labor Variances 17 18 The formulas for the direct labor variances are: Actual Hours X Actual Rate (AH) X (AR) – Standard Hours X Standard Rate (SH) X (SR) = Total Labor Variance (TLV) Actual Hours X Actual Rate (AH) X (AR) – Actual Hours X Standard Rate (AH) X (SR) = Labor Price Variance (LPV) Actual Hours X Standard Rate (AH) X (SR) – Standard Hours X Standard Rate (SH) X (SR) = Labor Quantity Variance (LQV) Labor price variances usually result from paying workers higher wages than expected and/or misallocation of workers Labor quantity variances relate to the efficiency of the workers and are the responsibility of the production department Manufacturing Overhead Variances 19 (S.O 5) The total overhead variance is the difference between the actual overhead costs and overhead costs applied based on standard hours allowed 20 To find the total overhead variance in a standard costing system, we determine the overhead costs applied based on standard hours allowed Standard hours allowed are the hours that should have been worked for the units produced The total overhead variance formula is as follows: Actual Overhead 21 – Overhead Applied = Total Overhead Variance One reason for an overhead variance relates to over- or under-spending on overhead items Generally the responsibility for these variances rests with the production department The overhead variance can also result from inefficient use of overhead The responsibility for these variances rests on either the production or sales departments Reporting of Variances 22 (S.O 6) All variances should be reported to appropriate levels of management as soon as possible Variance reports facilitate the principle of “management by exception.” Rather than analyze every variance, top management will normally look for significant variances 11-7 Statement Presentation of Variances 23 (S.O 7) In income statements prepared for management under a standard cost accounting system, cost of goods sold is stated at standard cost and the variances are separately disclosed In financial statements prepared for stockholders and other external users, standard costs may be used Balanced Scorecard 24 (S.O 8) Many companies use both financial and nonfinancial measures to evaluate performance This approach is known as the balanced scorecard The four most commonly employed perspectives are as follows: a The financial perspective employs financial measures of performance b The customer perspective evaluates how well the company is performing from the viewpoint of those people who buy and use its product c The internal process perspective evaluates the internal operating processes critical to success d The earning and growth perspective evaluates how well the company develops and retains its employees The different perspectives are linked together so a company can better understand how to achieve its goals and what measures to use to evaluate performance Standard Cost Accounting System *25 (S.O 9) A standard cost accounting system is a double-entry system of accounting in which standard costs are used in making entries and variances are formally recognized in the accounts A standard cost system may be used with either job order or process costing *26 As an example, the purchase of raw materials inventory for $5,000 when the standard cost is $6,000 would be recorded as follows: Raw Materials Inventory Materials Price Variance Accounts Payable a b 6,000 1,000 5,000 A debit balance in a variance account indicates an unfavorable variance A credit balance in a variance account indicates a favorable variance *27 In income statements prepared for management, cost of goods sold is stated at standard cost and the variances are separately disclosed *28 Standard costs may be used in costing inventories in financial statements prepared for stockholders when there are no significant differences between actual and standard costs However, if the difference is material, the inventories and cost of goods sold must be reported at actual costs 11-8 Overhead Variances *29 (S.O 10) The computation of the manufacturing overhead variances is conceptually the same as the computation of the materials and labor variances For manufacturing overhead, however, both variable and fixed overhead must be considered The formulas are: Actual Overhead – Overhead Applied* = Actual Overhead – Overhead Budgeted* = Fixed Overhead Rate X ( Normal Standard Capacity – Hours Hours Allowed ) Total Overhead Variance Overhead Controllable Variance = Overhead Volume Variance *30 The overhead controllable variance shows whether overhead costs were effectively controlled a Budgeted costs are determined from the flexible manufacturing overhead budget for standard hours allowed b Most controllable variances are associated with variable costs which are controllable costs *31 The overhead volume variance indicates whether plant facilities were efficiently used during the period a This variance relates solely to fixed costs b It measures the amount that fixed overhead costs are under- or overapplied *32 In computing the overhead variances, a Standard hours allowed are used in each of the variances b Budgeted costs are derived from the flexible budget c The controllable variance generally pertains to variable costs d The volume variance pertains solely to fixed costs 11-9 LECTURE OUTLINE A The Need for Standards Standards are common in business; those imposed by government agencies are often called regulations Both standards and budgets are predetermined costs, and both contribute to management planning and control a A standard is a unit amount b A budget is a total amount A standard is the budgeted cost per unit of product Standard costs offer a number of advantages to an organization: B a They facilitate management planning b They promote greater economy by making employees more “cost-conscious.” c They are useful in setting selling prices d They contribute to management control by providing a basis for evaluation of cost control e They are useful in highlighting variances in management by exception f They simplify costing of inventories and reduce clerical costs Setting Standard Costs Companies set standards at one of two levels: a Ideal, or b Normal 11-10 b Labor quantity variances relate to the efficiency of workers and generally can be traced to the production department TEACHING TIP Use ILLUSTRATION 11-5 to demonstrate the calculation of the direct labor variances by means of a matrix Journal entries are illustrated that incorporate standard costs into the accounts in the general ledger Manufacturing overhead variance a Actual Overhead – Overhead Applied = Total Overhead Variance (Overhead applied is based on standard hours allowed) Causes of manufacturing overhead variance Responsibility for the overhead variance rests with the production department The cause of the variance may be: a Higher than expected use of indirect materials, indirect labor, and electricity, or b Inefficient use of overhead (i.e reduced production due to machine breakdowns because of poor maintenance) The overhead variance is the responsibility of the production department if the cause is lack of skilled labor or machine breakdowns When the cause is a lack of sales orders, the responsibility rests outside the production department D Reporting Variances All variances should be reported to appropriate levels of management as soon as possible 11-14 Variance reports facilitate the principle of “management by exception” by highlighting significant differences Top management normally looks for significant variances These may be judged on the basis of some quantitative measure, such as more than 10% of the standard or more than $1,000 E Statement Presentation of Variances In income statements prepared for management under a standard cost accounting system, cost of goods sold is stated at standard cost and the variances are disclosed separately When there are no significant differences between actual costs and standard costs, companies report their inventories at standard costs If there are significant differences between actual and standard costs, the financial statements must report inventories and cost of goods sold at actual costs F Balanced Scorecard The balanced scorecard incorporates financial and nonfinancial measures in an integrated system that links performance measurement and a companys strategic goals The balanced scorecard evaluates company performance from four perspectives: a Financial perspective—employs financial measures of performance used by most firms b Customer perspective—evaluates how well the company is performing from the viewpoint of those people who buy and use its products or services 11-15 c Internal process perspective—evaluates the internal operating processes critical to success d Learning and growth perspective—evaluates how well the company develops and retains its employees Within each perspective, the balanced scorecard identifies objectives that will contribute to attainment of strategic goals The objectives are linked across perspectives in order to tie performance measurement to company goals The balanced scorecard provides measurable objectives for nonfinancial measures such as product quality It integrates all of the companys goals into a single performance measurement system *G Standard Cost Accounting System A standard cost accounting system is a double-entry system of accounting In this system, companies use standard costs in making entries, and they formally recognize variances in the accounts The system is based on two important assumptions: a Variances from standards are recognized at the earliest opportunity, and b The Work in Process account is maintained exclusively on the basis of standard costs *H Overhead Controllable and Volume Variances The total overhead variance is generally analyzed through a price variance (controllable variance) and a quantity variance (volume variance) 11-16 The overhead controllable variance shows whether overhead costs are effectively controlled The overhead volume variance relates to whether fixed costs were under-or over-applied during the year TEACHING TIP ILLUSTRATION 11-6 provides formulas for computing total overhead variance, controllable variance, and volume variance a Actual Overhead – Overhead Budgeted = Overhead Controllable Variance (Overhead budgeted is based on standard hours allowed) b Fixed Overhead Rate × [Normal Capacity Hours – Standard Hours Allowed] = Overhead Volume Variance TEACHING TIP Use ILLUSTRATION 11-7 to demonstrate the calculation of the overhead variances Journal entries are illustrated that incorporate standard costs into the accounts in the general ledger See Illustration 11-1 in which predetermined variable and fixed overhead rates per unit are computed as shown on the job cost sheet 11-17 20 MINUTE QUIZ Circle the correct answer True/False The primary difference between standards and budgets is that a standard is a unit amount, whereas a budget is a total amount True False An advantage of standard costs is that standard costs facilitate management planning by establishing expected future costs True False Ideal standards represent an efficient level of performance that is attainable under expected operating conditions True False The direct labor price standard generally includes employer payroll taxes and fringe benefits, such as paid holidays and vacations True False (Actual Quantity × Standard Price) – (Standard Quantity × Actual Price) = Materials Price Variance True False (Actual Hours × Actual Rate) – (Actual Hours × Standard Rate) = Labor Price Variance True False Standard hours allowed are the hours that should have been worked for the units produced True False Variance reports facilitate the principle of “management by exception.” True False In income statements prepared under a standard cost accounting system, cost of goods sold is stated at standard cost True False *10 The overhead controllable variance is the difference between the actual overhead costs incurred and the overhead applied True False 11-18 Multiple Choice Which of the following is an advantage of standard costs? a Contribution to management control b Promotion of greater economy and efficiency c Simplification of the costing of inventories and reduction of clerical costs d All of the above If the predetermined overhead rate per hour is $6 for variable and $2 for fixed overhead, standard direct labor hours per unit is hours and actual direct labor hours per unit was 1.5 hours, then the overhead standard per unit is a $4 per unit b $8 per unit c $16 per unit d $12 per unit The formula for the labor quantity (or efficiency) variance is a (Actual Hours × Actual Rate) – (Actual Hours × Standard Rate) b (Actual Hours × Standard Rate) – (Standard Hours × Standard Rate) c (Standard Hours × Actual Rate) – (Standard Hours × Standard Rate) d none of the above *4 If actual overhead is $70,000, overhead applied is $67,000 and overhead budgeted for the standard hours allowed is $78,000, then the overhead controllable variance is a $3,000 F b $11,000 U c $8,000 F d $8,000 U *5 In a standard cost accounting system, a company purchased raw materials on account for $46,500 when the standard cost was $44,000 The journal entry would not include a a debit to Raw Materials Inventory for $44,000 b debit to Materials Price Variance for $2,500 c credit to Materials Price Variance for $2,500 d credit to Accounts Payable for $46,500 11-19 ANSWERS TO QUIZ True/False True True False True False *10 True True True True False Multiple Choice *4 *5 d c b c c 11-20 ILLUSTRATION 11-1 STANDARD COSTS STANDARD COST CARD Total Standard Cost per Unit Direct Materials Quantity pounds Price × $5 per lb = $10 = 36 = 48 $94 Direct Labor Quantity hours Price × $9 per hr Manufacturing Overhead Quantity Price hours (1) $ Variable (2) Fixed $12 per hr × Standard Predetermined Overhead Rate: (1) Budgeted Variable Overhead Cost $ 80,000 = Expected number of standard labor hours 10,000 = $ Budgeted Fixed Overhead Cost $ 40,000 = Expected number of standard labor hours 10,000 = Total Budgeted Overhead Cost = $120,000 Expected number of standard labor hours = 10,000 = $12 (2) 11-21 ILLUSTRATION 11-2 FORMULAS FOR MATERIALS VARIANCES FORMULA FOR TOTAL MATERIALS VARIANCE (TMV) Actual Quantity × Actual Price (AQ) × (AP) – Standard Quantity × Standard Price (SQ) × (SP) = Total Materials Variance FORMULA FOR MATERIALS PRICE VARIANCE (MPV) Actual Quantity × Actual Price (AQ) × (AP) – Actual Quantity × Standard Price (AQ) × (SP) = Materials Price Variance FORMULA FOR MATERIALS QUANTITY VARIANCE (MQV) Actual Quantity × Standard Price (AQ) × (SP) – Standard Quantity × Standard Price (SQ) × (SP) 11-22 = Materials Quantity Variance ILLUSTRATION 11-3 VARIANCE ANALYSIS—DIRECT MATERIALS Problem Standard prices for materials purchased = $5.00 per lb Data: Actual quantity of materials purchased and used = 5,200 lbs Actual price for materials purchased = $4.80 per lb Actual product produced = 2,400 units Standard quantity of materials used for products produced = 4,800 lbs (2,400 × lbs.) Actual Quantity × Actual Price Actual Quantity × Standard Price Standard Quantity × Standard Price (AQ) × (AP) 5,200 × $4.80 $24,960 (AQ) × (SP) 5,200 × $5.00 $26,000 (SQ) × (SP) 4,800 × $5.00 $24,000 Quantity Variance $26,000 – $24,000 = $2,000 U Price Variance $24,960 – $26,000 = $1,040 F Total Variance $24,960 – $24,000 = $960 U JOURNAL ENTRIES Raw Materials Inventory Materials Price Variance Accounts Payable (To record purchase of materials) 26,000 Work in Process Inventory 24,000 Materials Quantity Variance 2,000 Raw Materials Inventory (To record issuance of raw materials) 11-23 1,040 24,960 26,000 ILLUSTRATION 11-4 FORMULAS FOR DIRECT LABOR VARIANCES FORMULA FOR TOTAL LABOR VARIANCE (TLV) Actual Hours × Actual Rate (AH) × (AR) – Standard Hours × Standard Rate (SH) × (SR) = Total Labor Variance FORMULA FOR LABOR PRICE VARIANCE (LPV) Actual Hours × Actual Rate (AH) × (AR) – Actual Hours × Standard Rate (AH) × (SR) = Labor Price Variance FORMULA FOR LABOR QUANTITY VARIANCE (LQV) Actual Hours × Standard Rate (AH) × (SR) – Standard Hours × Standard Rate (SH) × (SR) 11-24 = Labor Quantity Variance ILLUSTRATION 11-5 VARIANCE ANALYSIS—DIRECT LABOR Problem Standard rate of pay = $9.00 per hour Data: Actual direct labor hours worked = 9,500 hours Actual rate of pay = $9.50 per hour Actual product produced = 2,400 units Standard quantity of labor hours for products produced = 9,600 hrs (2,400 × hrs.) Actual Hours × Actual Rate Actual Hours × Standard Rate Standard Hours × Standard Rate (AH) × (AR) 9,500 × $9.50 $90,250 (AH) × (SR) 9,500 × $9.00 $85,500 (SH) × (SR) 9,600 × $9.00 $86,400 Quantity Variance $85,500 – $86,400 = $900 F Price Variance $90,250 – $85,500 = $4,750 U Total Variance $90,250 – $86,400 = $3,850 U JOURNAL ENTRIES Factory Labor Labor Price Variance Wages Payable (To record direct labor costs) 85,500 4,750 Work in Process Inventory Labor Quantity Variance Factory Labor (To assign factory labor to jobs) 86,400 11-25 90,250 900 85,500 ILLUSTRATION 11-6 FORMULAS FOR OVERHEAD VARIANCES FORMULA FOR TOTAL OVERHEAD VARIANCE Actual Overhead – Overhead Applied = Total Overhead Variance FORMULA FOR OVERHEAD CONTROLLABLE VARIANCE Actual Overhead – Overhead Budgeted = Overhead Controllable Variance FORMULA FOR OVERHEAD VOLUME VARIANCE Fixed Overhead Rate × Normal Capacity Hours – Standard Hours Allowed 11-26 = Overhead Volume Variance ILLUSTRATION 11-7 VARIANCE ANALYSIS—OVERHEAD Problem Normal capacity (in hours) = 10,000 Data: Actual overhead incurred: Variable, $72,000; Fixed, $38,300 Actual product produced = 2,400 units Standard quantity of direct labor hours for units produced = 9,600 hrs (2,400 × hrs.) Variable $ 76,800 (9,600 × $8) Flexible budget for overhead: Fixed (Budgeted) 40,000 (10,000 × $4) (See Illustration 11-1) $116,800 Actual Overhead – $110,300 Fixed Overhead Rate $4 × Overhead Budgeted for Standard Hours Allowed Variable $76,800 + Fixed $40,000 = $116,800 Normal Capacity Hours – Standard Hours Allowed Controllable Variance = $6,500 F Overhead Volume Variance = $1,600 U (10,000 – 9,600) JOURNAL ENTRIES 110,300 Manufacturing Overhead Accounts Payable/Cash/Acc Depreciation (To record overhead incurred) 110,300 115,200* Work in Process Inventory Manufacturing Overhead (To assign overhead to jobs) *[($8 + $4) × 9,600] 115,200 Manufacturing Overhead Overhead Volume Variance Overhead Controllable Variance (To recognize overhead variances) 11-27 4,900 1,600 6,500 ... measures to use to evaluate performance Standard Cost Accounting System *25 (S.O 9) A standard cost accounting system is a double-entry system of accounting in which standard costs are used in making... single performance measurement system *G Standard Cost Accounting System A standard cost accounting system is a double-entry system of accounting In this system, companies use standard costs... on a standard predetermined overhead rate a This overhead rate is determined by dividing budgeted overhead costs by an expected standard activity index b The standard manufacturing overhead rate