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generally in the best position to understand and explain the reason for this selling pricedifference. For example, was the difference due to better quality? Or was it due to anoverall increase in market prices? Webb’s managers concluded it was due to a generalincrease in prices.The flexible-budget variance for total variable costs is unfavorable ($70,100 U) for theactual output of 10,000 jackets. It’s unfavorable because of one or both of the following:Webb used greater quantities of inputs (such as direct manufacturing labor-hours)compared to the budgeted quantities of inputs.Webb incurred higher prices per unit for the inputs (such as the wage rate per directmanufacturing labor-hour) compared to the budgeted prices per unit of the inputs.Higher input quantities and/or higher input prices relative to the budgeted amounts couldbe the result of Webb deciding to produce a better product than what was planned or theresult of inefficiencies in Webb’s manufacturing and purchasing, or both. You shouldalways think of variance analysis as providing suggestions for further investigation ratherthan as establishing conclusive evidence of good or bad performance.The actual fixed costs of $285,000 are $9,000 more than the budgeted amount of$276,000. This unfavorable flexible-budget variance reflects unexpected increases in thecost of fixed indirect resources, such as factory rent or supervisory salaries.In the rest of this chapter, we will focus on variable direct-cost input variances.Chapter 8 emphasizes indirect (overhead) cost variances.=$50,000 F=($125 per jacket-$120 per jacket)*10,000 jacketsSelling-pricevariance=¢Actualselling price-Budgetedselling price≤*Actualunits soldDecisionPointHow are flexible-budget and sales-volume variancescalculated?
234CHAPTER 7FLEXIBLE BUDGETS, DIRECT-COST VARIANCES, AND MANAGEMENT CONTROLPrice Variances and Efficiency Variances forDirect-Cost InputsTo gain further insight, almost all companies subdivide the flexible-budget variance fordirect-cost inputs into two more-detailed variances:1.A price variance that reflects the difference between an actual input price and a bud-geted input price2.An efficiency variance that reflects the difference between an actual input quantity anda budgeted input quantityThe information available from these variances (which we call level 3 variances) helpsmanagers to better understand past performance and take corrective actions to implementsuperior strategies in the future. Managers generally have more control over efficiencyvariances than price variances because the quantity of inputs used is primarily affected byfactors inside the company (such as the efficiency with which operations are performed),while changes in the price of materials or in wage rates may be largely dictated by marketforces outside the company (see the Concepts in Action feature on p. 237).