m40bchapter6summer2017.pptx - henko Tisc tterstock hu...

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Chapter C&C Sports © Tis c he nko I rina / S h ut t e rs t oc k © js nyd erd e s ig n/ S t o c k p ho t o ©aopsan/Stockphoto ©pe t e k a r i c i / S to ck photo ©petek ar i c i /S to c k photo PERFORMANCE EVALUATION: VARIANCE ANALYSIS 6
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Unit Sell in 4 th quarter: 70,000 pants 25,000 jerseys 9,000 award jackets Control inventory Manage cash The budget plan for 4 th quarter 6.1
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Unit C&C sold more award jackets than budgeted. Managers thought that would be a good thing. Turns out, workers took too long to make the extra jackets. And they were paid overtime to meet customer delivery dates. Net income was $144,800 lower than budgeted, even though more jackets were sold. What’s up? 6.1
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Flexible Budgets: A Performance Evaluation Tool U ni t 6. 1 C&C Sports
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Unit 6.1 Actual results achieved Budgeted (expected) results Variance A variance is any difference between what you expected and what you achieved. Total variance
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Unit Actual Static Budget Variance Sales $2,457,525 $2,335,000 $122,525 F Cost of goods sold 1,724,150 1,582,757 141,393 U Gross margin 733,375 752,243 (18,868) U Selling and administrative expenses 385,139 360,753 24,386 U Operating income 348,236 391,490 (43,254) U Financing costs 2,256 1,880 376 U Income before taxes 345,980 389,610 (43,630) U Income taxes 103,794 116,883 (13,089) F Net income ($30,541) U Let’s look at some variances 6.1 A variance is favorable if it increases net income
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Unit Actual Static Budget Variance Sales $2,457,525 $2,335,000 $122,525 F Cost of goods sold 1,724,150 1,582,757 141,393 U Gross margin 733,375 752,243 (18,868) U Selling and administrative expenses 385,139 360,753 24,386 U Operating income 348,236 391,490 (43,254) U Financing costs 2,256 1,880 376 U Income before taxes 345,980 389,610 (43,630) U Income taxes 103,794 116,883 (13,089) F Net income $242,186 $272,727 ($30,541) U Let’s look at some variances 6.1 A variance is unfavorable if it decreases net income
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Unit 6.1 The month has just ended, and your department has been very productive. You were able to crank out 38,000 units! That’s 3,000 more than were budgeted for the month. You figure this must be good for a bonus, so let’s see how well you did. Your performance report
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Unit Your performance report 6.1 Actual Results Static Budget Variances Units produced 38,000 35,000 3,000 Variable expenses Direct labor $6,000 U Direct materials 26,000 21,000 5,000 U Power 1,700 U Maintenance 2,900 U Fixed expenses Depreciation 80,000 80,000 --- Maintenance 92,400 92,000 400 U Supervision 38,000 38,000 --- Total expenses $383,500 $367,500 $16,000 U These variances are unfavorable because actual expenses were greater than what was budgeted, thus lowering net income.
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