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Caldwell. . CMA Jon A. Rooney.B. Ph.A. Booker.D... CPA McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies. All rights reserved.D. Ph.Additional Topics in Variance Analysis Chapter 17 PowerPoint Authors: Susan Coomer Galbreath. CPA Charles W. Inc..D. D. Ph. CIA Cynthia J.. CPA.

• Most companies close variances to Cost of Goods Sold.LO 17-1 Profit Variance Analysis LO 17-1 Explain how to prorate variances to inventories and cost of goods sold. • Other companies prorate the variances. 17-3 .

000 -0-0$106.000 90.000 F $ 4.000 140.000 F $106.000 332.000 F 200.000 $424.000 $439.000 U 200.890 U $24.680 F $11.000 $40.000 U 100.000 $800.000 F 18.000 units and Admin.LO 17-1 Profit Variance Analysis Bayou Division Profit Variance Analysis (when units produced do not equal units sold) Actual Sales (units) Sales revenue Less: Variable costs Variable manufacturing costs Variable selling and administrative Contribution margin Fixed costs: Fixed manufacturing overhead Fixed selling and administrative costs Profit Mfg.290 4.000 140.000 F 304.000. produced) Variances 80.000 $ 190.890 68.000 U 380.000 $ 530.710 U 17-4 .110 $28.000 76.000 72. Variances (based on Marketing 90.000 $1.000 F 7.000 $ 84.000 Total variance from flexible budget = $27.000 $40.000 $840.290 F Total variance from master budget = $78.890 U 195.000 $200.000 F 80.500 132.500 F $28.390 U $ 4.320 $111.680 F Sales Price Variance Flexible Budget Sales Activity Variance Master Budget $40.

890 To close production cost variances to Cost of Goods Sold.LO 17-1 Closing Production Cost Variance to COGS Journal entry to close production variance to cost of goods sold: Cost of Goods Sold 24.390 Fixed Overhead Price Variance 4. 17-5 .500 Variable Production Cost Variance 28.

500 Finished Goods Inventory 2.890 To close production cost variances to Finished Goods and Cost of Goods Sold.680 Fixed Overhead Price Variance 4.710 Variable Production Cost Variance 28. 17-6 .LO 17-1 Prorating Production Cost Variances Journal entry to prorate production variance to cost of goods sold and finished goods inventory: Cost of Goods Sold 21.680 (8/9 of the variance) is closed to Cost of Goods Sold and $2.710 (1/9 of the variance) is closed to Finished Goods Inventory. $21.

800 SP × AQ = $180.60) × Actual quantity (AQ = 328.800 – $180.000 pounds) of direct materials Standard materials price (SP = $0.LO 17-1 Direct Materials Variance: No Materials Inventory (1) Actual (2) Actual Inputs at Standard Prices (3) Flexible Production Budget Actual materials price (AP = $0.000 Price variance $196.400 SP × SQ = $176.400 U Total variance = $16.400 = $20.400 – $176.400 U Efficiency variance $180.55) × Actual quantity (AQ = 328.400 + $4.000 = $4.55) × Standard quantity (SQ = 320.000 pounds) of direct materials allowed for actual output AP × AQ = $196.000 pounds) of direct materials Standard materials price (SP = $0.400 = $16.800 U 17-7 .

55 × 328.000 pounds) of direct materials allowed for actual output Purchase Computations Usage Computations Price variance: $210.500 U $0.000 pounds) of direct materials Standard materials price (SP = $0.LO 17-1 Direct Materials Variance: Materials Inventory (1) Actual (2) Actual Inputs at Standard Prices (3) Flexible Production Budget Actual materials price (AP = $0.500 Standard materials price (SP = $0.400 SP × SQ $0.000 Efficiency variance: $180.500 = $17.000 SP × AQ = $192.400 – $176.000– $192.000 pounds allowed = $176.000 = $4.60) × Actual quantity (AQ = 350.55) × Standard quantity (SQ = 320.000 pounds) of direct materials AP × AQ = $210.55 × 320.400 U 17-8 .55) × Actual quantity (AQ = 350.000 pounds used = $180.

500 17.LO 17-1 Materials: Standard Costing System Journal entry to record purchase of materials: Materials Inventory Material Price Variance Accounts Payable 192. Journal entry to record materials used: Work-in-Process Inventory Material Efficiency Variance Materials Inventory 176.000 pounds.60 per pound and a standard price of $0.000 pounds of material with a standard price of $0.000 pounds of material with an actual price of $0.500 $210. Standard use is 320. 17-9 .400 To record the use of 328.55 per pound.000 To record the purchase of 350.000 4.800 $180.55 per pound.

Industry Volume Variance Portion of the sales activity variance due to changes in industry volume Market Share Variance Portion of the activity variance due to changes in the company’s proportion of sales in the markets in which the company operates 17-10 .LO 17-2 Market Share Variance and Industry Volume Variance LO 17-2 Use market share variances to evaluate marketing performance.

000) × 25% = 25.LO 17-2 Market Share Variance Industry volume (500.000 – 400.000 fewer frames Market share (16% – 25%) × 500.000 fewer frames 17-11 .000 = 45.000 additional frames Difference between actual and budgeted sales volume = 20.

Sales Mix Variance Variance arising from the relative proportion of different products sold Sales Quantity Variance Variance occurring in multiproduct companies from the change in volume of sales. independent of any change in sales mix 17-12 .LO 17-3 Sales Activity Variances LO 17-3 Use sales mix and quantity variances to evaluate marketing performance.

Product Mix Variance Variance that arises from a change in the relative proportion of inputs (a materials or labor mix variance) Production Yield Variance Difference between expected output from a given level of inputs and the actual outputobtained from those inputs 17-13 .LO 17-4 Production Mix and Yield Variances LO 17-4 Evaluate production performance using production mix and yield variances.

guests Seat-miles. revenue-miles Patient-days 17-14 . legal. and consulting firms Hotel Airline Hospital Output Measures Professional staff hours Room-nights.LO 17-5 Variance Analysis in Nonmanufacturing Settings LO 17-5 Apply the variance analysis model to nonmanufacturing costs. Output Measures in Service Organizations Organization Public accounting.

17-15 . an industry average. Management by exception: Approach to management requiring that reports emphasize the deviation from an accepted base point. a budget. or a prior period experience.LO 17-6 Variance and Standards LO 17-6 Determine which variances to investigate. such as a standard.

End of Chapter 17 17-16 .