Performance Evaluation Using Variances from Standard Costs LO

  • Slides: 13
Download presentation
Performance Evaluation Using Variances from Standard Costs LO 2 – Understanding How Standards are

Performance Evaluation Using Variances from Standard Costs LO 2 – Understanding How Standards are Used in Budgeting @ 2012, Cengage Learning

LO 2 Budgetary Performance Evaluation è The control function, or budgetary performance evaluation, compares

LO 2 Budgetary Performance Evaluation è The control function, or budgetary performance evaluation, compares the actual performance against the budget.

LO 2 Budgetary Performance Evaluation è The standard cost per unit for direct materials,

LO 2 Budgetary Performance Evaluation è The standard cost per unit for direct materials, direct labor, and factory overhead is computed as follows: Standard x = Cost Per Unit Price Quantity

LO 2 Budgetary Performance Evaluation Western Rider’s standard costs per unit for XL jeans

LO 2 Budgetary Performance Evaluation Western Rider’s standard costs per unit for XL jeans are shown in Exhibit 1.

LO 2 Budget Performance Report è The report that summarizes actual costs, standard costs,

LO 2 Budget Performance Report è The report that summarizes actual costs, standard costs, and the differences for the units produced is called a budget performance report.

LO 2 Budget Performance Report è The differences between actual and standard costs are

LO 2 Budget Performance Report è The differences between actual and standard costs are called costs variances. è A favorable cost variance occurs when the actual cost is less than the standard cost (at actual volumes). è An unfavorable cost variance occurs when the actual cost exceeds the standard cost.

LO 2 Budget Performance Report è Western Rider produced and sold 5, 000 pairs

LO 2 Budget Performance Report è Western Rider produced and sold 5, 000 pairs of XL jeans. It incurred direct materials costs of $40, 150, direct labor costs of $38, 500, and factory overhead costs of $22, 400. Western Rider Inc. ’s budget performance report is shown in Exhibit 2 on the next slide.

LO 2 Budget Performance Report

LO 2 Budget Performance Report

LO 2 Manufacturing Cost Variances è In examining Exhibit 2, you can see that

LO 2 Manufacturing Cost Variances è In examining Exhibit 2, you can see that the direct materials variance is an unfavorable $2, 650. The amount of blue denim used per pair of blue jeans may have been different than expected, and/or the purchase price of blue denim was higher than expected.

LO 2 Manufacturing Cost Variances è The total manufacturing cost variance is the difference

LO 2 Manufacturing Cost Variances è The total manufacturing cost variance is the difference between total standard costs and total actual costs for the units produced. è For control purposes, each product cost variance is separated into two additional variances as shown in Exhibit 3 (next slide).

LO 2 Manufacturing Cost Variances

LO 2 Manufacturing Cost Variances

LO 2 Manufacturing Cost Variances è The total direct materials variance is separated into

LO 2 Manufacturing Cost Variances è The total direct materials variance is separated into price and quantity variances. Price Difference + Quantity Difference

LO 2 Manufacturing Cost Variances è The total direct labor variance is separated into

LO 2 Manufacturing Cost Variances è The total direct labor variance is separated into rate and time variances. Rate Difference + Time Difference

Performance Evaluation Using Variances from Standard Costs LOPerformance Evaluation Using Variances from Standard Costs LO
Costs Variable costs costs of Fixed costs costsCosts Variable costs costs of Fixed costs costs
Standard Costs and Variances Learning Objectives Explain standardStandard Costs and Variances Learning Objectives Explain standard
Chapter 6 Performance Evaluation Using Variances from StandardChapter 6 Performance Evaluation Using Variances from Standard
Chapter 21 Performance Evaluation Using Variances from StandardChapter 21 Performance Evaluation Using Variances from Standard
Chapter 21 Performance Evaluation Using Variances from StandardChapter 21 Performance Evaluation Using Variances from Standard
Chapter 22 Performance Evaluation Using Variances from StandardChapter 22 Performance Evaluation Using Variances from Standard
Chapter 22 Performance Evaluation Using Variances from StandardChapter 22 Performance Evaluation Using Variances from Standard
CHAPTER 22 Performance Evaluation Using Variances from StandardCHAPTER 22 Performance Evaluation Using Variances from Standard
Pertemuan 7 Standard Costs Standard Costs Predetermined StandardPertemuan 7 Standard Costs Standard Costs Predetermined Standard
Standard Costs and Operating Performance Measures Standard CostsStandard Costs and Operating Performance Measures Standard Costs
Standard Costs and Operating Performance Measures Standard CostsStandard Costs and Operating Performance Measures Standard Costs