Horngren Ima16 stppt08
Horngren Ima16 stppt08
Horngren Ima16 stppt08
publishing as
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Chapter 8
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Learning
Objective 1
Costs
U
F
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Favorable or Unfavorable
Variance?
To determine whether a variance is
favorable or unfavorable,
use logic rather than memorizing a formula.
A price
variance is
favorable if the
actual price is
less than the
standard.
A quantity variance is
favorable if the actual
quantity used is less
than the standard
quantity allowed.
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Learning
Objective 2
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Learning
Objective 3
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Learning
Objective 4
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Flexible
budget for
actual
sales
activity
(2) = (1)-(3)
(3)
Sales Activity
Variance
(4) =
(3)(5)
Static
Budget
(5)
Units
7,000
7,000
2,0
Sales
$217,000
$217,000
$62,000 U $27
Variable costs
158,200
5,670 U
152,600
Contribution margin $ 58,730 $ 5,670 U
$ 64,400
$1
Fixed costs
70,300
300 U
70,000
Operating income
$ (11,570) $5,970 U
$(5,600) $1
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Flexible-Budget Variances
Flexible-budget variance
= Actual results Flexible-budget
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Sales-Activity Variances
Sales
activity
income
variance
(9,000 7,000)
Contribution
margin per unit
$9.20
$18,400 Unfavorable
Falling short of the sales target by 2,000 units explains
$18,400 of the shortfall of income relative to the amount
initially budgeted.
Copyright 2014 Pearson Education, Inc. publishing as
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Learning
Objective 5
Role of Standards in
Determining Variances
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Setting Standards
A standard cost is a
carefully developed cost per
unit that should be attained.
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5 pounds
hour
$ 2 /pound
$
$16/hour
$
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Direct material
Cost allowed
7,000 units X
5 pounds X $2.00 per
pound =
$70,000
Direct labor
Cost allowed
7,000 units X 1/2 hour
X $16.00 per hour =
$56,000
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Direct material
Pounds purchased
and used: 36,800
Price/pound X $1.90
= Total actual cost
$69,920
Direct labor
Hours used: 3,750 X
Actual price (rate)
X $16.40
= Total actual cost
$61,500
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=
Units of good output achieved
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(1)
(2)
(3)
Flexible
Actual
Flexible
Budget
Costs
Budget
Variance
Direct Materials $69,920
*$70,000
$
Direct Labor
61,500
**$56,000
$5,500
Copyright 2014 Pearson Education, Inc. publishing as
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Learning
Objective 6
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Direct-Materials
Flexible-budget variance:
$3,680 favorable
+ $3,600 unfavorable
= $80 favorable
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Learning
Objective 7
Variable-Overhead Spending
and Efficiency Variances
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Variable-Overhead Variances
variableoverhead
efficiency
variance
actual
cost-driver
activity
variableactual
overhead variable
spending
overhead
variance
standard
cost-driver
activity
allowed
standard
variable-overhead
rate per
cost-driver unit
standard
variable-overhead
rate per unit
of cost-driver
actual
cost-driver
activity
used
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Learning
Objective 8
Therefore . . .
The difference between actual fixed
overhead and budgeted fixed overhead
is the fixed overhead spending variance.
Copyright 2014 Pearson Education, Inc. publishing as
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