Download presentation
Presentation is loading. Please wait.
1
Performance Evaluation
Chapter 8 Performance Evaluation
2
Standard vs. Actual To evaluate managerial performance you compare standard vs. actual Standard Amount – amount mgmt expects to exist; Companies establish standards for many different variables including the number of units made, the sales price of the units, the costs of the units, and the cost of the resources used to make the units
3
Standard vs. Actual Actual Amount – the amount that did, in fact, exist; Companies identify many different variables for which there are actual amounts Standard – Budgeted Expectation Actual – Historical Result
4
Standard – Actual = Variance
Variance – Difference between a standard amount and an actual amount A variance can be either favorable or unfavorable Favorable – Did better than you thought you would Unfavorable – Did worse than you thought you would
5
Variances When actual sales exceed expected sales
Favorable When actual sales are less than expected Unfavorable When actual costs exceed budgeted costs When actual costs are less then budgeted costs
6
Let’s Try It Budget Actual Variance F or UF Selling & Admin
Budget Actual Variance F or UF Selling & Admin $ 29,000.00 $ 27,000.00 Sales Revenue $ 310,000.00 $ 325,000.00 Materials Price 2.00 per lb 2.10 per lb Cost of Goods Sold $ 125,000.00 $ 100,000.00
7
Let’s Try It Budget Actual Variance F or UF Selling & Admin
Budget Actual Variance F or UF Selling & Admin $ 29,000.00 $ 27,000.00 $2,000 F Sales Revenue $ 310,000.00 $ 325,000.00 $15,000 F Materials Price 2.00 per lb 2.10 per lb $0.10 / lb UF Cost of Goods Sold $ 125,000.00 $ 100,000.00 $25,000 F
8
Budgets Static Budget – Remains unchanged even if the actual volume of activity differs from planned volume = Standard Prices(Costs) * Expected Volume Flexible Budget – Show expected revenues and costs at a variety of volume levels = Standard Prices(Costs) * Actual Volume
10
Actual Result = Actual Prices(Costs) * Actual Volume
Activity (Volume) Variance = Difference between static budget and flexible budget Flexible Budget Variance = Difference between flexible budget and the actual results
11
Static Flexible Actual Budget Budget Results
Standard Standard Actual Prices/Costs Prices/Costs Prices/Costs X X X Expected Units Actual Units Actual Units Activity (Volume Variance) Price (Rate) Variance
12
Sales Volume Variance Difference between the static budget and the flexible budget Static = Budgeted Volume Flexible = Actual Volume
13
Sales Price Variance Difference between budgeted and actual sales price or cost
14
For Example Company expects to sell 18,000 units for $80 per unit.
At the end of the quarter, the company sold 19,000 units for $78 per unit. Sales Price Variance $80 vs. $78 Unfavorable Sales Volume Variance 18,000 vs. 19,000 Favorable
15
Static Flexible Actual Budget Budget Results
Standard Standard Actual Prices/Costs Prices/Costs Prices/Costs X X X Expected Units Actual Units Actual Units $80 * 18,000 $80 * 19,000 $78 * 19,000 $1,440,000 $1,520,000 $1,482,000 Activity (Volume Variance) Flexible Budget Variance $80,000 – Favorable $38,000 – Unfavorable $42,000 - Favorable
16
For Example Total Sales Variance:
Actual Sales (19,000 * $78) $1,482,000 Expected Sales (18,000 * $80) 1,440,000 Total Sales Variance $ ,000 Favorable
17
Formulas Materials Price Variance: Materials Usage Variance:
= Actual Price – Standard Price * Actual Quantity Materials Usage Variance: =Actual Quantity – Standard Quantity * Standard Price Labor Rate Variance: = Actual Rate – Standard Rate * Actual Quantity
18
Example Standard / Budgeted information:
Labor: 20 min per painting; $7 wage cost per hour Material: ½ quart of paint per painting; $5 per quart Overhead: $3 per labor hour
19
Actual 2010 paintings Labor: 700 hrs; $6.90 cost per hour
Material: 1,100 quarts $6; 975 quarts used
20
Direct Labor Variance S.P. * S.Q. S.P. * A.Q. A.P. * A.Q.
$7 * 670 hrs $7 * 700 hrs $6.90*700 hrs $4, $4, $4,830 $ $70 Unfavorable Favorable Quantity Price $140 Unfavorable
21
Material Variance Format
Standard Price Standard Price Standard Quantity Actual Quantity Standard Price Actual Price Actual Quantity Actual Quantity ***The actual quantities are different. One is actual quantity purchased, the other is actual quantity used. Inventory Quantity Price
22
Material Variance $5 * 1005 qts $5 * 975 qts $5,025 $4,875 Inventory
Standard Price Standard Price Standard Quantity Actual Quantity $5 * 1005 qts $5 * 975 qts $5, $4,875 Standard Price Actual Price Actual Quantity Actual Quantity ***The actual quantities $5 * $6 * 1100 are different. One is actual $5, $6,600 quantity purchased, the other is actual quantity used. Inventory Quantity Price
23
Total Material Variance
Material - $5,025 - $4,875 = $150 Favorable Price - $5,500 - $6,600 = $1,100 Unfavorable Inventory - $4,875 - $5,500 = $625 Unfavorable Total Variance = $1,575 Unfavorable
Similar presentations
© 2025 SlidePlayer.com. Inc.
All rights reserved.