projecto variance
DESCRIPTION
TRANSCRIPT
Analyzing and Reporting
Variances From Standards
Introducction
Each variance we computed is the difference between an amount based on an actual result and the corresponding budgeted amount – that is , the actual amount of something and the amount it was supposed to be according to the budget (Horngren,Datar,Foster,2003).
By Nicolas Huguet
Static Budget VarianceFavorable variance- has the effect of
increasing(Horngren,Datar,Foster,2003) operating income relative to the budget amount.
Unfavorable variance- has the effect of decreasing operating income relative to the budget amount(Horngren,Datar,Foster,2003).
Flexible- Budget Variance and Sales Volumen Variance
Sales Volumen Variance- is the (Horngren,Datar,Foster,2003) difference between a flexible- budget amount and the corresponding static budget amount.Sales volumen flexible- budget static budget variance for = amount - amount the operating income
Flexible- Budget Variance- is the difference between an actual result and the corresponding flexible- budget amount based on the output level in the budget period. flexible- budget Actual flexible budget
variance = results - amount
$1,000 units should have cost (x $50) 50,000
But did cost 46,075
Direct material total variance 3, 925
Direct Material Variances
The direct (Globusz, 2001-2010) material total variance is the difference between what the output actually cost and what it should have cost, in terms of material.From the example above the material total variance is given by:
$ 4,850 kgs should have cost (x $10) 48,500
But did cost 46,075
The Direct Material Price Variance
This is the difference (Globusz, 2001-2010) between what the actual quantity of material used did cost and what it should have cost.
Direct Labour Total Variance
The direct labour total variance is the difference between what the output should have cost and what it did cost, in terms of labour (Globusz, 2001-2010).
$ 1,000 units should have cost (x $20) 20,000
But did cost 21,210
Direct material price variance 1,210
$ 1,000 units should have taken (x 4 hrs) 4,000 hrs
But did take 4,200 hrs
Variance in hrs 200 hrs
Valued at standard rate per hour x $5
Direct labour efficiency variance $1,000
The Direct Labor Efficiency Variance
The is the (Globusz, 2001-2010) difference between how many hours should have been worked for the number of units actually produced and how many hours were worked, valued at the standard rate per hour.
$ 1,000 units should have cost (x $8) 8,000
But did cost 9,450
Variable production o/hd expenditure variance 1,450
Variable Production Overhead Total Variances
The variable (Globusz, 2001-2010) production overhead total variance is the difference between what the output should have cost and what it did cost, in terms of variable production overhead.
The variable production overhead expenditure variance
Labor efficiency variance in hours 200 hrs
Valued @ standard rate per hour x $2
Variable production o/hd efficiency variance $400
The Variable Production Overhead Efficiency
Variance
This is the same (Globusz, 2001-2010) as the direct labour efficiency variance in hours, valued at the variable production overhead rate per hour.
Actual production at std rate (1,000 x $24) 24,000
Budgeted production at std rate (1,200 x $24) 28,800
4,800
Fixed Production Overhead Volume
VarianceThis is the (Globusz, 2001-2010) difference between actual and budgeted production volume multiplied by the standard absorption rate per unit.
Direct Materials VarianceBy J.
Santana
Setting Standard Costs—A Difficult TaskSetting Standard Costs—A Difficult Task
Direct Materials
The direct materials price standard is the cost per unit of direct materials that should be incurred.
Setting Standard Costs—A Difficult TaskSetting Standard Costs—A Difficult TaskDirect Materials
The direct materials quantity standard is the quantity of direct materials that should be used per unit of finished goods.
The standard direct materials cost is $12.00
($3.00 × 4.0 pounds).
Illustration: Inman Corporation manufactures a single product. The standard cost per unit of product is shown below.
Analyzing and Reporting VariancesAnalyzing and Reporting Variances
Direct materials—2 pounds of plastic at $5.00 per pound 10.00$
Direct labor—2 hours at $12.00 per hour 24.00
Variable manuf acturing overhead 12.00
Fixed manuf acturing overhead 6.00 Total standard cost per unit 52.00$
The predetermined manufacturing overhead rate is $9 per direct labor hour ($18.00/2). It was computed from a master manufacturing overhead budget based on normal production of 180,000 direct labor hours for (90,000 units) .
$18.00
The master budget showed total variable costs of $1,080,000 ($6.00 per hour) and total fixed overhead costs of $540,000 ($3.00 per hour). Actual costs for November in producing 7,600 units were as follows.
Analyzing and Reporting VariancesAnalyzing and Reporting Variances
Direct materials (15,000 pounds) 73,500$
Direct labor (14,900 hours) 181,780
Variable overhead 88,990
Fixed overhead 44,000 Total manuf acturing costs 388,270$
The purchasing department buys the quantities of raw materials that are expected to be used in production each month. Raw materials inventories, therefore, can be ignored.
Direct Materials Variances
In producing 7,600 units, the company used 15,000 pounds of direct materials. These were purchased at a cost of $4.90 per unit ($73,500/15,000 pounds). The standard quantity of materials is 15,200 pounds (7,600 ×
2). The total materials variance is computed from the following formula.
Analyzing and Reporting VariancesAnalyzing and Reporting Variances
Total Materials Variance (TMV)
Actual Quantity × Actual Price [(AQ) × (AP)]
Standard Quantity × Standard Price [(SQ) × (SP)]
- =
$2,500 F$73,500 (15,000 × $4.90)
$76,000 (15,200 × $5.00)
- =
Direct Materials Variances
Next, the company analyzes the total variance to determine the amount attributable to price (costs) and to quantity (use). The materials price variance is computed from the following formula.
Analyzing and Reporting VariancesAnalyzing and Reporting Variances
Materials Price Variance (MPV)
Actual Quantity x Actual Price [(AQ) × (AP)]
Actual Quantity x Standard Price [(AQ) × (SP)]
- =
$1,500 F$73,500 (15,000 × $4.90)
$75,000 (15,000 × $5.00)
- =
Direct Materials Variances
The materials quantity variance is determined from the following formula.
Analyzing and Reporting VariancesAnalyzing and Reporting Variances
Materials Quantity Variance (MQV)
Actual Quantity × Standard Price [(AQ) × (SP)]
Standard Quantity × Standard Price [(SQ) × (SP)]
- =
$1,000 F$75,000 (15,000 × $5.00)
$76,000 (15,200 × $5.00)
- =
Companies sometimes use a matrix to analyze a variance.
Price Variance
$73,500 – $75,000 = $1,500 F
Quantity Variance
$75,000 – $76,000 = $1,000 F
Total Variance
$73,500 – $76,000 = $2,500 F
Matrix for Direct Materials VariancesMatrix for Direct Materials Variances1 2 3
1 2- 2 3-
1 3-
Actual Quantity× Actual Price[(AQ) × (AP)]
15,000 × $4.90 = $73,500
Standard Quantity× Standard Price[(SQ) × (SP)]
15,200 × $5.00 = $76,000
Actual Quantity× Standard Price[(AQ) × (SP)]
15,000 × $5.00 = $75,000
Causes of Material Variances
Materials Price Variance – Factors that affect the price paid for raw materials include the availability of quantity and cash discounts, the quality of the materials requested, and the delivery method used. To the extent that these factors are considered in setting the price standard, the purchasing department is responsible.
Analyzing and Reporting VariancesAnalyzing and Reporting Variances
Materials Quantity Variance – If the variance is due to inexperienced workers, faulty machinery, or carelessness, the production department is responsible.
Analyzing and Reporting Variances From Standards (Direct Labor Variances)
By Marcos J. Morales
One of the major management uses of standard costs is to identify variances from standards.
Variances are the differences between total actual costs and total standard costs.
Analyzing and Reporting Variances From Standards (Direct Labor Variances)
Analyzing and Reporting Variances From Standards (Direct Labor Variances)
Causes of Labor Variances
Labor Price Variance – Usually results from two factors:
(1) paying workers higher wages than expected
(2) misallocation of workers. The manager who authorized the wage increase is responsible for the higher wages. The production department generally is responsible variances resulting from misallocation of the workforce.
Analyzing and Reporting VariancesAnalyzing and Reporting Variances
Labor Quantity Variances - Relates to the efficiency of workers. The cause of a quantity variance generally can be traced to the production department.
When actual costs exceed standard costs, the variance is unfavorable.
When actual costs are less than standard costs, the variance is favorable.
To interpret properly the significance of a variance, you must analyze it to determine the underlying factors. Analyzing variances begins by determining the cost elements that comprise the variance.
Analyzing and Reporting VariancesAnalyzing and Reporting Variances
Setting Standard Costs—A Difficult TaskSetting Standard Costs—A Difficult Task
Direct Labor
The direct labor price standard is the rate per hour that should be incurred for direct labor.
Setting Standard Costs—A Difficult TaskSetting Standard Costs—A Difficult TaskDirect Labor
The direct labor quantity standard is the time that should be required to make one unit of the product.
The standard direct labor cost is $20 ($10.00 × 2.0 hours).
Illustration: Inman Corporation manufactures a single product. The standard cost per unit of product is shown below.
Analyzing and Reporting Variances (Cost Breakdown)Analyzing and Reporting Variances (Cost Breakdown)
Direct materials—2 pounds of plastic at $5.00 per pound 10.00$
Direct labor—2 hours at $12.00 per hour 24.00
Variable manuf acturing overhead 12.00
Fixed manuf acturing overhead 6.00 Total standard cost per unit 52.00$
The predetermined manufacturing overhead rate is $9 per direct labor hour ($18.00/2). It was computed from a master manufacturing overhead budget based on normal production of 180,000 direct labor hours for (90,000 units) .
$18.00
Standard Cost Accounting Procedure for Labor:
Actual hours worked (AH) 1,880
Actual rate paid per hour (AR) $ 6.50
Standard hours allowed for actual production (SH) 1,590
Standard rate per hour (SR) $ 6.00
The following journal entry is passed to record the actual direct labor payroll, assuming that
there were no payroll deductions. Dr. Cr.
Payroll (AH x AR) (1880 x $6.50) $
12,220.00
Accrued Payroll (AH x AR) (1880 x $6.50)
$12,220.0
0 Actual hours worked
(AH) 1,880.00
Actual rate paid per hour (AR) $ 6.50
Standard hours allowed for actual production
(SH) 1,590.00
Standard rate per hour (SR) $ 6.00
Labor Price Variance
$12,220 – $11,280 = $940.00 U
Labor Quantity Variance
$11,280 – $9,540 = $1,740 U
Total Variance
$12,220 – $9,540 = $2,680 U
Matrix for Direct Labor VariancesMatrix for Direct Labor Variances1 2 3
1 2- 2 3-
1 3-
Actual Hours× Actual Rate(AH) × (AR)
1,880 x $6.50 = $12,220
Standard Hours× Standard Rate(SH) × (SR)
1,590 x $6.00 = $9540
Actual Hours× Standard Rate(AH) × (SR)
1,880 x $6.00 = $11,280
Actual hours worked (AH) 1,880.00
Actual rate paid per hour (AR) $ 6.50
Standard hours allowed for actual production
(SH) 1,590.00
Standard rate per hour (SR) $ 6.00
Journal Entry for Direct Labor Variance (Format)
Work in Process (SH x SR) XXX
Labor Rate Variance [(AR-SR)AH] XXX or XXX
Labor Efficiency Variance [(AH-SH)SR] XXX or XXX
Wages Payable (AH x AR) XXX
Journal Entry for Direct Labor Variance
Dr. Cr.Work in Process ($1,590 x $6.00) $ 9,540.00 Labor Rate Variance [($6.50-$6.00) x 1880] $ 940.00 Labor Efficiency Variance [(1880-1590) x $6.00] $ 1,740.00
Wages Payable (1880 x $6.50) $ 12,220.00
Actual hours worked (AH) 1,880.00
Actual rate paid per hour (AR) $ 6.50
Standard hours allowed for actual production
(SH) 1,590.00
Standard rate per hour (SR) $ 6.00
“Favorable” Variances May be UnfavorableThe fact that a variance is favorable does not
mean that it should not be investigated. Indeed, a favorable variance may be
indicative of poor management decisions. For example:
A favorable material price variance may be arisen from purchasing goods of inadequate
quality for production.A favorable overhead volume variance could
mean that excessive inventory has been produced beyond customer demand.
Manufacturing Overhead Variance
By Mario Félix
Manufacturing Overhead Variances- overhead variance
overhead variance is generally analyzed through a price variance and a quantity variance.
- overhead controllable variance
overhead Controllable Variance shows whether overhead costs are effectively controlled. (varianza de precio)
- overhead volume variance
overhead Volume Variance relates to whether fixed costs were under- or over-applied during the year. (varianza de cantidad)
Before computing overhead always remember
- The controllable variance generally is for the variable costs.
- Standard hours allowed are used in each of the variances.
- Budgeted costs for the controllable variance are derived from the flexible budget.
Total Overhead varianceWhat is the total overhead variance?
The difference between actual overhead costs and overhead costs applied to work done.
Ex.Total overhead costs:
Variable overhead $ 50,000
+
Fixed overhead $50,000 = 100,000
Overhead applied:
Standard hours allowed 10,000
*
Rate per direct labor hour 9 =90,000
Total Overhead Variance = 10,000
Overhead Volume Variance What is the Volume Variance?Is the difference normal capacity hours and
standard hours allowed time the fixed averhead.Ex.Budget Overhead:Normal capacity in hours 500 -Standard hours allowed 450= 50 *Fixed overhead rate ($8/4) 2Overhead volume variance= 100
Overhead Controllable Variance
What is the overhead controllable variance?Compare the actual overhead cost in budget
cost for the standar hours allowed.Ex.Budget overhead: 10,000 -Actual overhead costs: 8,000Overhead controllable variance= 2,000
In Controllable Variance: unfavorable variance in the
production department may be caused by increase use of:
-Indirect manufacturing costs-Factory Supplies-Indirect labor-Indirect material
In the overhead Volume Variance: unfavorable variance in the production department may be caused by:
-inefficient use of direct labor or machine breakdowns
Reporting Variances
All variances should be reported to appropriate levels of management as soon as possible.
The form, content, and frequency of variance reports vary considerably among companies.
Facilitate the principle of “management by exception.”
Top management normally looks for significant variances.
Analyzing and Reporting VariancesAnalyzing and Reporting Variances
Reporting Variances
Reporting Variances
Analyzing and Reporting VariancesAnalyzing and Reporting Variances
Materials price variance report for Xonic, Inc., with the materials for the Weed-O order listed first.
Statement Presentation of Variances
Statement Presentation of VariancesIn income statements prepared for management under a standard cost accounting system, cost of goods sold is stated at standard cost and the variances are disclosed separately.
Analyzing and Reporting VariancesAnalyzing and Reporting Variances
ReferencesHorgren,Datar,Foster,(2003) Cost Accounting A Managerial Emphasis, Eleventh Edition, Prentice Hall Upper Saddle River , NJ 07458
www.globusz.com/ebooks/costing/00000015.htm
Managerial Accounting: Tools for Business Decision Making, 5th Edition, Jerry J. Weygandt (University of Wisconsin, Madison), Paul D. Kimmel (University of Wisconsin-Milwaukee), Donald E. Kieso (Northern Illinois University) October 2009, ©2010
http://www.principlesofaccounting.com/chapter%2017.htm#SCHEDULE OF COST OF GOODS MANUFACTURED
Questions?
Today is a great day to be an accountant!!!!