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B.D.. Caldwell.D. Booker.D.. Ph. Ph.. CPA McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies. Inc. CPA. Ph.A. . CPA Charles W. D. CMA Jon A.Fundamentals of Variance Analysis Chapter 16 PowerPoint Authors: Susan Coomer Galbreath. All rights reserved. CIA Cynthia J.. Rooney.

LO 16-1 Using Budgets for Performance Evaluation LO 16-1 Use budgets for performance evaluation. budgeted cost of goods sold. and supporting budgets Financial Budgets Budgets of financial resources. the cash budget and the budgeted balance sheet Variance Difference between planned result and actual outcome 16-3 . Operating Budgets Budgeted income statement. production budget. for example.

500 4.320 $327.000 U 100.00 per unit b $3.500 F 200.320 50.000b 22.000 $ 75.680 $442.000 $ 12.000 195.680 F 140.000.500 132.90 per unit 16-4 .000 $ 87.180 F $ 340.000 $0.80 per unit c Variance Master Budget 80.000 $397.000 F 90.000 329.000 $840.000 7.000a $160.320 F $ 470.LO 16-1 Profit Variance Bayou Division Budget and Actual Results August Actual Sales (units) Sales revenue Less: Variable costs Variable mfg.820 $114.500 U $ 190.000 20.000c $ 72.680 68.320 F 380.000 U $1.680 U $ 530. costs Variable selling and administrative Total variable costs Contribution margin Fixed costs: Fixed manufacturing overhead Fixed selling and administrative costs Total fixed costs Profit a $10.

usually the master budget Flexible Budget Budget that indicates revenues. costs. Static Budget Budget for a single activity level.LO 16-2 Flexible Budgeting LO 16-2 Develop and use flexible budgets. and profits for different levels of activity 16-5 .

Sales Activity Variance The difference between operating profit in the master budget and operating profit in the flexible budget that arises because the actual number of units sold is different from the budgeted number 16-6 .LO 16-3 Sales Activity Variance LO 16-3 Compute and interpret the sales activity variance.

000 140. costs (@ $3.000 16-7 .000 F $ 470.000 U $ 190.$ 340.000.000 76.000 200.000 $200.000 U $ 530.000 -0200.000 18.000 72.000 $106.000 $800.000 304.000 F 380.000 20.000 -0140.000 U 100.00 per unit) Less: Variable costs Variable mfg.000 $ 84. (@ $0.000 F 90.90 per unit) Total variable costs Contribution margin Fixed costs: Fixed manufacturing overhead Fixed selling and administrative costs Total fixed costs Profit Sales-Activity Variance Master Budget 80.000 $424.000 $ 94.000 U $1.LO 16-3 Sales Activity Variance Bayou Division Flexible and Master Budget August Flexible Budget Sales (units) Sales revenue (@ $10.000 $376.000 -0.80 per unit) Variable selling and admin.000 $106.000 $340.

LO 16-4 Profit Variance Analysis LO 16-4 Prepare and use a profit variance analysis. Profit Variance Analysis Analysis of the causes of differences between budgeted profits and the actual profits earned Sales price variance Fixed production cost variances Variable production cost variances Marketing and administrative cost variances 16-8 .

000 units = $40.000 F 16-9 .LO 16-4 Sales Price Variance Sales Price Variance Difference between the actual selling price and budgeted selling price multiplied by the actual number of units sold ($10.$10) x 80.50 .

LO 16-5 Variable Cost Variance Analysis LO 16-5 (1) Compute and use variable cost variances. Actual (2) Actual Inputs at Standard Prices (3) Flexible Production Budget Actual input price (AP) times actual quantity (AQ) of input Standard input price (SP) times actual quantity (AQ) of input Standard input price (SP) times standard quantity (SQ) of input allowed for actual good output (AP × AQ) (SP × AQ) (SP × SQ) Price variance (1) – (2) Efficiency variance (2) – (3) Total variance (1) – (3) 16-10 .

LO 16-5 Production Cost Variance Price Variance Difference between actual price and budgeted price Multiply this difference by the actual quantity purchased. Price variance = (AP × AQ) – (SP × AQ) = AQ(AP – SP) 16-11 .

Price variance = (SP × AQ) – (SP × SQ) = SP(AQ – SQ) 16-12 . Multiply this difference by the budgeted price per unit.LO 16-5 Production Efficiency Variance Efficiency Variance Difference between the actual quantity used and the budgeted quantity for the actual level of activity.

800 U 16-13 .60) × Actual quantity (AQ = 328.400 U Total variance = $16.000 Price variance $196.400 SP × SQ = $176.000 pounds) of direct materials allowed for actual output AP × AQ = $196.400 = $16.000 pounds) of direct materials Standard materials price (SP = $0.800 SP × AQ = $180.000 = $4.400 U Efficiency variance $180.000 pounds) of direct materials Standard materials price (SP = $0.400 = $20.55) × Actual quantity (AQ = 328.LO 16-5 Direct Materials Variance (1) Actual (2) Actual Inputs at Standard Prices (3) Flexible Production Budget Actual materials price (AP = $0.400 + $4.800 – $180.55) × Standard quantity (SQ = 320.400 – $176.

400 hours) of direct labor Standard labor price (SP = $20) × Actual quantity (AQ = 4.000 = $800 F 16-14 .000 Price variance $79.000 hours) of direct labor allowed for actual output AP × AQ = $79.200 – $88.400 hours) of direct labor Standard labor price (SP = $20) × Standard quantity (SQ = 4.000 = $8.800 – $8.LO 16-5 Direct Labor Variance (1) Actual (2) Actual Inputs at Standard Prices (3) Flexible Production Budget Actual labor price (AP = $18) × Actual quantity (AQ = 4.000 – $80.800 F Efficiency variance $88.000 = $8.000 SP × SQ = $80.000 U Total variance = $8.200 SP × AQ = $88.

800 = $5.800 U Total variance = $880 + $4.000 = $4.800 SP × SQ = $48.680 U 16-15 .LO 16-5 Variable Overhead Variance (1) (2) Actual Inputs at Standard Prices (3) Flexible Production Budget Sum of actual variable manufacturing overhead costs Standard variable overhead price (SP = $12) × Actual quantity (AQ = 4.680– $52.800– $48.000 hours) of the overhead base allowed for actual output produced AP × AQ = $53.800 = $880 U Efficiency variance $52.400 hours) of the overhead base Standard variable overhead price (SP = $12) × Standard quantity (SQ = 4.000 Actual Price variance $53.680 SP × AQ = $52.

• Spending (or budget) variance • Price variance for fixed overhead • The difference between budgeted and actual fixed overhead • $195.LO 16-6 Fixed Cost Variances LO 16-6 Compute and use fixed cost variances.000 budget = $4.500 F 16-16 .500 actual – $200.

End of Chapter 16 16-17 .