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Fundamentals of Variance
Analysis
McGraw-Hill/Irwin
16 - 2
LO
1
Profit Variance
Bayou Division
Budget and Actual Results
August
Actual
Sales (units)
Sales revenue
Less: Variable costs
Variable mfg. costs
Variable selling and administrative
Total variable costs
Contribution margin
Fixed costs:
Fixed manufacturing overhead
Fixed selling and administrative costs
Total fixed costs
Profit
a
Variance
Master
Budget
80,000
$840,000
20,000 U
100,000a
$160,000 U $1,000,000
329,680
68,000
$397,680
$442,320
50,320 F
380,000b
22,000 F
90,000c
$ 72,320 F $ 470,000
$ 87,680 U $ 530,000
195,500
132,320
$327,820
$114,500
4,500 F
200,000
7,680 F
140,000
$ 12,180 F $ 340,000
$ 75,500 U $ 190,000
Flexible Budgeting
L.O. 2 Develop and use flexible budgets.
Static budget:
Budget for a single activity level;
usually the master budget
Flexible budget:
Budget that indicates revenues, costs,
and profits for different levels of activity
16 - 4
16 - 5
LO
4
Sales (units)
Sales revenue
Less: Variable costs
Variable manufacturing costsa
Variable selling and administrative
Contribution margin
Fixed costs:
Fixed manufacturing overhead
Fixed selling and administrative costs
Profit
Mfg.
Variances
Marketing
and Admin.
Variances
80,000
$840,000
329,680
68,000
$442,320
$25,680 U
195,500
132,320
$114,500
4,500 F
$25.680 U
$21,180 U
$ 4,000 F
$ 4,000 F
7,680 F
$11,680 F
Sales
Price
Variance
Flexible
Budget
Sales
Activity
Variance
Master
Budget
$40,000 F
80,000
$800,000
$200,000 U
100,000
$1,000,000
$40,000 F
304,000
72,000
$424,000
76,000 F
18,000 F
$106,000 U
380,000
90,000
$ 530,000
$40,000 F
200,000
140,000
$ 84,000
-0-0$106,000 U
200,000
140,000
$ 190,000
LO
4
Direct material
Direct labor
Variable overhead
Total variable manufacturing costs
Standard
Quantity of Input
per Unit of Output
Standard Input
Price or Rate
per Unit of Input
Standard Cost
per Unit of
Output (frame)
4 pounds
0.05 hours
0.05 hours
$2.20
1.00
0.60
$3.80
16 - 8
(2)
Actual Inputs at
Standard Prices
(3)
Flexible Production
Budget
(AP AQ)
(SP AQ)
(SP SQ)
Price variance
(1) (2)
Efficiency variance
(2) (3)
Total variance
(1) (3)
16 - 9
LO
5
(2)
Actual Inputs at
Standard Prices
(3)
Flexible Production
Budget
AP AQ = $196,800
SP AQ = $180,400
SP SQ = $176,000
Price variance
$196,800 $180,400
= $16,400 U
Efficiency variance
$180,400 $176,000
= $4,400 U
Total variance
= $16,400 + $4,400 = $20,800 U
16 - 10
LO
5
(2)
Actual Inputs at
Standard Prices
(3)
Flexible Production
Budget
AP AQ = $79,200
SP AQ = $88,000
SP SQ = $80,000
Price variance
$79,200 $88,000
= $8,800 F
Efficiency variance
$88,000 $80,000
= $8,000 U
Total variance
= $8,800 $8,000 = $800 F
16 - 11
LO
5
(2)
Actual Inputs at
Standard Prices
(3)
Flexible Production
Budget
Sum of actual
variable
manufacturing
overhead costs
Standard variable
overhead price
(SP = $12)
Actual quantity
(AQ = 4,400 hours)
of the overhead base
Standard variable
overhead price (SP = $12)
Standard quantity
(SQ = 4,000 hours)
of the overhead base allowed
for actual output produced
AP AQ = $53,680
SP AQ = $52,800
SP SQ = $48,000
Actual
Price variance
$53,680 $52,800
= $880 U
Efficiency variance
$52,800 $48,000
= $4,800 U
Total variance
= $880 + $4,800 = $5,680 U
16 - 12
LO
5
Variable Manufacturing
Cost Variance Summary
Direct materials
Direct labor
Variable overhead
Total variable manufacturing
cost variance
Price
$16,400 U
$ 8,800 F
$ 880 U
Efficiency
$4,400 U
$8,000 U
$4,800 U
Total
$20,800 U
$ 800 F
$ 5,680 U
$25,680 U
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LO
6
End of Chapter 16
McGraw-Hill/Irwin