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Chapter 10 - Variances are calculated for materials labor...

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Profit and Cost Center Performance Evaluation Maher 10e Chapter 10 1
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Learning Objectives 1. Explain reasons for conducting variance analyses. 2. Describe how to use budget for performance evaluation. 3. Identify different types of variances between actual results & flexible budget. 4. Assign responsibility for variances. 5. Describe the role of variance analysis in service organizations. 6. Explain the difference between price & efficiency variances. 7. Identify the relation between actual, budgeted, & applied fixed manufacturing costs. 2
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Reasons for Variance A variance is the difference between a predetermined norm or standard & actual results Standards may be biased Systematic reasons Change in prices More/less efficient use of inputs 3
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Types of Variances
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Unformatted text preview: Variances are calculated for materials, labor, fixed & variable manufacturing overhead. Variances are divided between – Price variance – Efficiency variance (Production volume variance for fixed manufacturing overhead) 4 The general model shows how a total variance is divided between price & efficiency. The general model shows how a total variance is divided between price & efficiency. 5 Overhead Variances • Variable overhead price variance results when the cost per machine hour is more/less than the standard allowed. • Variable overhead efficiency variance results if machine hours required to make the actual production output exceed the standard machine hours allowed to make that output. 6...
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