Basic Costing Homework Recap. Basic Costing Chapter 7 Comparison of costs & income.

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Presentation transcript:

Basic Costing Homework Recap

Basic Costing Chapter 7 Comparison of costs & income

Objectives Compare actual and expected costs Calculate variances in terms of both money and percentage Categorise variances as either adverse or favourable Identify any discrepancies and report to an appropriate person

Types of comparison Previous period’s data Corresponding data Forecast data

Previous period comparison Comparing previous month with the current month.

Corresponding period comparison Profit CentreDec 2006Dec 2005 Boston Lincoln Comparing the same months figures with that of previous years. In what instance or types of business might this be useful?

Corresponding to budget ActualBudgetVariance CuttingMaterial , A Labour7, , Expense6, , AssemblyMaterial1, , Labour2, , Expense10, , Comparing the expected or budgeted figures to the actual figures.

Variance The VARIANCE is the difference between the ACTUAL and the BUDGETED costs or income. VARIANCES can be either positive or negative. If materials actual cost was and the budgeted cost was 11, Would the variance be positive or negative?

Variances continued ADVERSE VARIANCE – actual cost is greater than the budgeted cost or where actual income is less than budgeted income. FAVOURABLE VARIANCE – actual cost is less than budgeted cost or actual income is greater than budgeted income.

Corresponding to budget ActualBudgetVariance CuttingMaterial , A Labour7, , Expense6, , AssemblyMaterial1, , Labour2, , Expense10, , Calculate the variances indicating whether the variance is Adverse or Favourable

Variances as a percentage Variance% Variances can also be shown as a percentage. This is worked out in terms of the BUDGET figure. What is the variance as a percentage of the budget?

Now calculate the Variance as a percentage Variance% CuttingMaterial A Labour Expense AssemblyMaterial Labour Expense

Reporting of Variances Significant variances should be reported to management. In exam questions it will usually tell you what the company policy is i.e. report variances over 5%

What ways could you report significant variances?

Manufacturing Account