variances and process costing HELP!

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  • #168733
    Anonymous
    Inactive

    Ok for some reason my brain does not want to grasp the concepts of variances and process costing. I have gone through Becker material, NINJA notes, and Wiley testbank granted I am getting 70% but I just don’t feel like I “GET” this material. Anyone want to dumb it down for me? Hoping if someone else explains it I can get it to click. Even following what Jeff has in the NINJA material I get it wrong…there has to be something I’m not getting AHHHH…. Help!

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  • #336280
    Anonymous
    Inactive

    Hmm, ok, let's start with variances…specifically, what are you struggling with?

    #336281
    Anonymous
    Inactive

    uh…. the calculations! haha seriously it's embarrassing how many times I have gone through this material and still just can't grasp it.

    #336282
    PistolPete
    Member

    I struggled with variances too. The way Becker teaches the material doesn't click with most people. Check page 17 of the BEC thread. There is an excellent standard costing video explanation, also check her YouTube channel for other costing videos.

    FAR - 68, 79
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    BEC - 76

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    Part 1: October 2013
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    #336283
    Anonymous
    Inactive

    ok I think I have variances down… looked up a powerpoint presentation online … here's what I have direct material price variance = (actual price-budgeted price) * actual quantity used direct labor price variance = (actual price – budgeted price) * actual quantity used direct material efficiency variance = (actual quantity – standard quantity) * standard price direct labor efficiency variance = (actual quantity – standard quantity) * standard price …. is this correct? Maybe my confusion is more in reading the actual question and plugging in the correct numbers. However, with process costing and wtd avg. fifo methods I get them sometimes and then others just don't….

    #336284
    Anonymous
    Inactive

    With process costing you have to 1) figure out what the Equivalent units of production. The FIFO method and the weighted average have different ways of figuring that out.

    2) Figure out the cost per equivalent unit (which you can see from your formulas)

    3) Figure out what the questions is saying. Do they want the beginning or current costs or do they want ending.

    #336285
    Anonymous
    Inactive

    @ pistolpete THANK you for that info about the video – this is how I remember variances and process costing explained to me in my accounting courses trying to learn it a different way just messed with my head. Thanks! Went over variances AND fifo process costing so far – excellent!

    #336286
    Keely
    Member

    I am using Becker and had a hard time with the OH variances, but once I did the MCQs a trillion times, I do like the A BA BS A mnemonic they use. Before I do a problem, I write down the little brackets with that and the SEV mnemonic and I find it really helps me pinpoint what exactly I need to be looking for.

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    #336287
    msgolds
    Participant

    Process Costing is not too difficult. The toughest part is calculating the equivalent units in FIFO vs. Weighted Average. Under FIFIO, whatever percentage of beginning inventory that you did not finish last period is included in this period's equivalent units. For example, 100 units of beginning inventory is 70% complete in regards to conversion costs, 30 units (100 * (1-0.7)) is included in this period's equivalent units. You calculate units started and completed by taking the amount transferred out, and subtracting whatever was in beginning inventory (since conceptually you are transferring those units out first). So going with our example, say you transfer out 150 units. Units started and completed would be 50 (150 minus the 100 in ending inventory). Started and completed will always be 100% complete since they're being transferred out of work in process. When it comes to ending inventory, just multiply the number of units by percent complete. So if you have 60 units that are 20% complete, you have 12 units in ending inventory. So total equivalent units would be 92 (30 + 50 + 12)

    The only difference in weighted average equivalent units is you don't need to worry about what was in beginning inventory. You add units transferred out to number of units in ending inventory times percent complete. To go with the example from above, we transferred out 150 units. We don't care if the units were from this period or last period, they are all included in equivalent units. The ending inventory is still calculated the same way (60 * 20% complete = 12). So equivalent units under the weighted-average method is 162 (150 transferred out + 12 in ending inventory)

    The other big difference is that FIFO does not include prior period costs in the calculationof Cost per Equivalent Unit but Weighted Average does. So let's say there were $10,000 of conversion costs last period and $7,500 this period. Cost per equivalent units over FIFO would be $7,500 / 92 units or $81.52 per unit. Under Weighted average it would be (10,000 prior period + 7,500 this period) / 162 units = $108.02 per unit. So the major difference between the two methods is how prior periods are treated.

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