1. 10 Standard Costs and Variance Analysis Chapter  Fewer units sold  Fewer units produced  DM and DL usage and prices are different than anticipated  How do you compare? Comparison of Actual vs. Budget for Beal Manufacturing

2. Actual Static Budget Sales CGS Sell & Admin Var Fixed Gross Marg Oper Inc $1,800,000 1,252,213 108,000 271,000 $ 547,787 7500 units $ 168,787 $1,975,000 1,264,000 110,600 280,000 7900 units $ 320,400 $ 711,000 Comparing actual results to the static budget is not very useful.  Some of the difference is due to sales volume.  Some is due to inefficiency.  A flexible budget is helpful.

3. Actual Flexible Budget Static Budget Sales CGS Sell & Admin Var Fixed Gross Marg Oper Inc $1,800,000 1,252,213 108,000 271,000 $ 547,787 7500 units $ 168,787 $1,975,000 1,264,000 110,600 280,000 7900 units $ 320,400 $ 711,000 Flexible budget based on budgeted rates and actual units sold

4. Actual Flexible Budget Variance Flexible Budget Sales Volume Variance Static Budget Sales CGS Sell & Admin Var Fixed Gross Marg Oper Inc $1,800,000 1,252,213 108,000 271,000 $ 547,787 7500 units $ 168,787 $1,975,000 1,264,000 110,600 280,000 7900 units $ 320,400 $ 711,000 $1,875,000 1,200,000 105,000 280,000 $ 675,000 7500 units $290,000 Net impact of low sales volume. Deserves a closer look.

5. Actual DM DL Manuf OH Variable Fixed CG Manuf $120,120 585,460 236,590 363,410 7800 units $1,305,580 23,100 lbs $5.20 40,100 hrs $14.60 ? DM- input - price DL- input - price VOH - rate $5.90 Flexible Budget $ 117,000 585,000 234,000 320,000 $1,256,000 7800 units List the detail for actual production costs. List corresponding detail for a flexible budget.

6. Actual Price Variance Act Input x Budg Price Usage Variance Flexible Budget DM DL Manuf OH Variable Fixed CG Manuf $120,120 585,460 236,590 363,410 7800 units $1,305,580 23,100 lbs $5.20 40,100 hrs $14.60 $5.90 DM- input - price DL- input - price VOH - rate $ 117,000 585,000 234,000 320,000 $1,256,000 7800 units 23,400 lbs $5.00 39,000 hrs $15.00 $6.00

7. Actual Flexible Budget DM Usage Variance DM- input - price DL- input - price VOH - rate 7800 units 23,400 lbs $5.00 39,000 hrs $15.00 $6.00 23,100 lbs $5.20 40,100 hrs $14.60 $5.90 7800 units Diff in UsagexBudg Price Diff in PricexActual Used DM Price Variance Diff in PricexActual Purch or….. Quick Calculations for the CPA Exam

8. DL Usage Variance Diff in UsagexBudg Price Diff in PricexActual Used DL Price Variance Actual Flexible Budget DM- input - price DL- input - price VOH - rate 7800 units 23,400 lbs $5.00 39,000 hrs $15.00 $6.00 23,100 lbs $5.20 40,100 hrs $14.60 $5.90 7800 units Quick Calculations for the CPA Exam

9. DM Usage Variance $ 4,620 U $ 1,500 F DM Price Variance DL Usage Variance $16,040 F $16,500 U DL Price Variance Possible Causes of Variances

10.  Unfavorable variances might indicate potential problems.  excessively high prices from suppliers  high defect rate  poor production scheduling  etc.  Favorable variances might indicate potential problems.  poor quality materials  workers lacking necessary skills  corners cut in production Understanding Variances

11.  Problems might be beyond the control of the production manager.  poor product design  rush orders causing congestion Understanding Variances

12. Journal Entries to Record Variances Two ways of recording DM and DL  record DM and DL at actual cost (Chpt 3)  report variances in statements that compare actual to budget  record DM and DL at standard cost (Chpt 10)  record variances at time of transaction Raw Materials (25,000 @ $5)125,000 5,000 A/P (25,000 @ $5.20)130,000 Standard cost Actual cost

13. WIP (7,800 x 3 lbs x $5 / lb)117,000 1,500 Raw Mater (23,100 x $5 / lb)115,500 Standard usage WIP (7,800 x 5 hrs x $15 / hr)585,000 DL Price Variance Wages Pay. (40,100 x $14.60)585,460 DL Usage Variance Actual usage Standard usage and cost Actual usage and cost