Basic Concepts• Favorable Variance F – has the effect of increasing operating income relative to the budget amount • Unfavorable Variance U – has the effect of decreasing operating in
Trang 1Topic 5
Trang 2Basic Concepts
and an expected (budgeted) amount
focusing attention on areas not operating
as expected (budgeted)
• Static (Master) Budget – is based on the
output planned at the start of the budget
period
Trang 3Basic Concepts
• Favorable Variance (F) – has the effect of
increasing operating income relative to
the budget amount
• Unfavorable Variance (U) – has the effect
of decreasing operating income relative to the budget amount
Trang 4Static Budgets and Performance
Reports
Static budgets are
prepared for a
single, planned
level of activity
Performance
evaluation is difficult
when actual activity
differs from the
planned level of
activity.
Hmm! Comparing static budgets with actual costs is like comparing apples and oranges.
Trang 5Improve performance evaluation.
May be prepared for any activity level in the relevant range
Show costs that should have been incurred at the actual level of
activity, enabling “apples to apples” cost comparisons
Help managers control costs
Characteristics of Flexible
Budgets
Trang 6Activity variances, revenue
variances & spending variances
Trang 7Variance Analysis
Standard Cost Variances
Price Variance
The difference between
the actual price and the
standard price
Quantity Variance (Efficiency variance)
The difference between the actual quantity and the standard quantity
Trang 8A General Model for Variance
Analysis
Actual Quantity Actual Quantity Standard Quantity allowed × × ×
Actual Price Standard Price Standard Price
Price Variance Quantity Variance
Standard price is the amount that should
have been paid for the resources acquired.
Trang 9Price Variance Quantity Variance
Actual Quantity Actual Quantity Standard Quantity allowed
× × ×
Actual Price Standard Price Standard Price
A General Model for Variance
Analysis
Standard quantity allowed is the quantity allowed for the actual units produced.
Standard quantity per unit times the actual units produced
Trang 101,700 lbs 1,700 lbs 1,500 lbs.
× × ×
$3.90 per lb $4.00 per lb $4.00 per lb = $6,630 = $ 6,800 = $6,000
Materials price variance
$170 favorable
Materials quantity variance
$800 unfavorable
Actual Quantity Actual Quantity Standard Quantity allowed × × ×
Actual Price Standard Price Standard Price
Material Variances
Trang 11Actual Hours Actual Hours Standard Hours allowed × × ×
Actual Rate Standard Rate Standard Rate
Labor Variances
Labor rate variance
$310 unfavorable
Labor efficiency variance
$600 unfavorable
1,550 hours 1,550 hours 1,500 hours × × ×
$12.20 per hour $12.00 per hour $12.00 per
hour
= $18,910 = $18,600 = $18,000
Trang 12Variable OH rate variance
$465 unfavorable
Variable OH efficiency variance
$150 unfavorable
1,550 hours 1,550 hours 1,500 hours × × ×
$3.30 per hour $3.00 per hour $3.00 per
hour
= $5,115 = $4,650 = $4,500
Actual Hours Actual Hours Standard Hours allowed × × ×
Actual Rate Standard Rate Standard Rate
Variable Manufacturing
Overhead Variances
Trang 13End of Topic 5