ACCTG 221 2021 S1 Week 5 Part B Variances Calculations.pdf...

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ACCTG.221 Week 05: Budgeting Control: Variances p 1 Learning Outcomes Compute variances for materials, labour and overhead costs Chapters 8 and 9 Class Example: Webb Jackets [continues from Week 04] produces and sells jackets. Level 1 Analysis and Variances The difference between budgeted profit and actual profit o Total static budget variance = | $108,000 - $14,900 | = ($93,100) Unfavourable o Makes the favourable static budget variance of $98,400 for direct materials looks very suspicious Level 2 Analysis and Variances We start to see what caused this total static budget variance | $108,000 - $14,900 | = ($93,100) Unfavourable o Sales volume variance = | $108,000 - $44,000 | = ($64,000) Unfavourable o Flexible budget variance = | $44,000 - $14,900 | = ($29,100) Unfavourable What might have caused the sales volume variance? o Demand? o Market share? o Customer preferences? o Quality? o Selling price? What might have caused the flexible budget variance? o Materials and labour quantities? o Input factor prices? o Overhead quantities and costs? Level 1 Analysis Static Budget Actuals (1) (3) Units Sold 12,000 2,000 U 10,000 $120 Revenue $1,440,000 $190,000 U $1,250,000 Variable Costs Direct Materials $720,000 $98,400 F $621,600 2 x $30 Direct Manufacturing Labour $192,000 $6,000 U $198,000 0.8 x $20 Variable Manufacturing Overhead $144,000 $13,500 F $130,500 0.4 x $30 Total Variable Costs $1,056,000 $105,900 F $950,100 Contribution Margins $384,000 b $84,100 U $299,900 c Fixed Manufacturing Costs $276,000 $9,000 U $285,000 Operating Income $108,000 $93,100 U $14,900 Level 1 Analysis -$93,100 U Static-budget variance (2) = (3) - (1) Static Budget Variances Level 2 Analysis Static Budget Actuals (1) (5) Units Sold 12,000 2,000 U 10,000 0 10,000 Revenue $1,440,000 $240,000 U $1,200,000 $50,000 F $1,250,000 Variable Costs Direct Materials $720,000 $120,000 F $600,000 $21,600 U $621,600 Direct Manufacturing Labour $192,000 $32,000 F $160,000 $38,000 U $198,000 Variable Manufacturing Overhead $144,000 $24,000 F $120,000 $10,500 U $130,500 Total Variable Costs $1,056,000 $176,000 F $880,000 $70,100 U $950,100 Contribution Margins $384,000 $64,000 U $320,000 $20,100 U $299,900 Fixed Manufacturing Costs $276,000 $0 $276,000 $9,000 U $285,000 Operating Income $108,000 $64,000 U $44,000 $29,100 U $14,900 Level 1 Analysis -$93,100 U Static-budget variance Level 2 Analysis -$64,000 U -$29,100 U Sales-volume variance Flexible-budget variance _____________________________ a F = favourable effect and U = unfavourable effect Sales-Volume Variances Flexible Budget Variances Flexible Budget (2) = (3) - (1) (3) (4) = (5) - (3)
ACCTG.221 Week 05: Budgeting Control: Variances p 2 The Role of a Flexible Budget Level 3 Variances All Product Costs have Level 3 Variances if you have the “standards” at the product or service unit level Direct Materials, Direct Manufacturing Labour and Variable Overhead have both “Price” and “Efficiency” Variances, except possibly using slightly different terms (which we will see soon) Fixed Overhead has two variances: Spending variance and Production-volume variance Caution: Actual Quantity (AQ) ≠ Actual Volume The Rules: Materials Labour and Variable Overhead Price (P) and Usage (Q) Rate (R) and Hours/Driver (H) Actual Actual: AQ x AP AH x AR Flexible - Price Flexible I: AQ x SP AH x SR Price Variance = | (AQ x AP) - (AQ x SP) | | (AH x AR) - (AH x SR) | or | AQ x (AP - SP) | | AH x (AR - SR) | Flexible - Price Flexible I: AQ x SP AH x SR Flexible - Std Qty Flexible II: SQ A x SP SH A x SR Usage Variance = | (AQ x SP) - (SQ A x SP) | | (AH x SR) - (SH A x SR) | or | (AQ - SQ A ) x SP) | | (AH - SH A ) x SR) | Formula Sheet for Level 3 Variances: [You will be given the following formulas during test and/or exam] Selling price variance = AQ x AP – AQ x SP

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