Variance Analysis
Variance Analysis
Variance Analysis
Performance Measures
Standard
Amount
Direct
Material
Direct Manufacturing
Labor Overhead
Take
Identify Receive corrective
questions explanations actions
Conduct next
Analyze period’s
variances operations
Prepare standard
Begin
cost performance
report
McGraw-Hill/Irwin Slide 4
Setting Standard Costs
McGraw-Hill/Irwin Slide 5
Setting Standard Costs
Should we use I recommend using practical
ideal standards that standards that are currently
require employees to attainable with reasonable
work at 100 percent and efficient effort.
peak efficiency?
McGraw-Hill/Irwin Slide 7
Setting Direct Material Standards
Price Quantity
Standards Standards
McGraw-Hill/Irwin Slide 8
Setting Standards
McGraw-Hill/Irwin Slide 9
Setting Direct Labor Standards
Rate Time
Standards Standards
McGraw-Hill/Irwin Slide 10
Setting Variable Manufacturing Overhead
Standards
Rate Quantity
Standards Standards
McGraw-Hill/Irwin Slide 11
Standard Cost Card – Variable Production
Cost
McGraw-Hill/Irwin Slide 12
Price and Quantity Standards
Variance Analysis
McGraw-Hill/Irwin Slide 14
A General Model for Variance Analysis
Variance Analysis
McGraw-Hill/Irwin Slide 15
A General Model for Variance Analysis
McGraw-Hill/Irwin Slide 16
A General Model for Variance Analysis
McGraw-Hill/Irwin Slide 17
A General Model for Variance Analysis
McGraw-Hill/Irwin Slide 18
A General Model for Variance Analysis
McGraw-Hill/Irwin Slide 19
A General Model for Variance Analysis
McGraw-Hill/Irwin Slide 20
A General Model for Variance Analysis
McGraw-Hill/Irwin Slide 21
Learning Objective 2
McGraw-Hill/Irwin Slide 22
Material Variances – An Example
McGraw-Hill/Irwin Slide 23
Material Variances Summary
Actual Quantity Actual Quantity Standard Quantity
× × ×
Actual Price Standard Price Standard Price
210 kgs. 210 kgs. 200 kgs.
× × ×
$4.90 per kg. $5.00 per kg. $5.00 per kg.
= $1,029 = $1,050 = $1,000
McGraw-Hill/Irwin Slide 24
Material Variances Summary
Actual Quantity Actual Quantity Standard Quantity
× × ×
Actual Price Standard Price Standard Price
210 kgs. 210 kgs. 200 kgs.
× × kgs
$1,029 210 ×
$4.90 per kg. $5.00per
= $4.90 perkg
kg. $5.00 per kg.
= $1,029 = $1,050 = $1,000
McGraw-Hill/Irwin Slide 25
Material Variances Summary
Actual Quantity Actual Quantity Standard Quantity
× × ×
Actual Price Standard Price Standard Price
210 kgs. 210 kgs. 200 kgs.
× 0.1 kg per parka× 2,000 parkas ×
$4.90 per kg. $5.00
= 200 per
kgs kg. $5.00 per kg.
= $1,029 = $1,050 = $1,000
McGraw-Hill/Irwin Slide 26
Material Variances:
Using the Factored Equations
McGraw-Hill/Irwin Slide 27
Isolation of Material Variances
I need the price variance I’ll start computing
sooner so that I can better the price variance
identify purchasing problems. when material is
You accountants just don’t purchased rather
understand the problems that than when it’s used.
purchasing managers have.
McGraw-Hill/Irwin Slide 28
Material Variances
McGraw-Hill/Irwin Slide 29
Responsibility for Material Variances
McGraw-Hill/Irwin Slide 30
Responsibility for Material Variances
McGraw-Hill/Irwin Slide 31
Zippy
Quick Check
McGraw-Hill/Irwin Slide 32
Zippy
Quick Check
McGraw-Hill/Irwin Slide 33
Zippy
Quick Check
McGraw-Hill/Irwin Slide 34
Zippy
Quick Check
McGraw-Hill/Irwin Slide 35
Zippy
Quick Check
McGraw-Hill/Irwin Slide 36
Zippy
Quick Check
McGraw-Hill/Irwin Slide 38
Zippy
Quick Check Continued
Actual Quantity
Used Standard
Quantity
× ×
Standard Price Standard Price
1,700 lbs. 1,500 lbs.
× ×
$4.00 per lb. $4.00 per lb.
= $6,800 = $6,000
Quantity variance is
unchanged because
actual and standard Quantity variance
quantities are unchanged. $800 unfavorable
McGraw-Hill/Irwin Slide 40
Learning Objective 3
McGraw-Hill/Irwin Slide 41
Labor Variances – An Example
McGraw-Hill/Irwin Slide 42
Labor Variances Summary
Actual Hours Actual Hours Standard Hours
× × ×
Actual Rate Standard Rate Standard Rate
2,500 hours 2,500 hours 2,400 hours
× × ×
$10.50 per hour $10.00 per hour. $10.00 per hour
= $26,250 = $25,000 = $24,000
McGraw-Hill/Irwin Slide 43
Labor Variances Summary
Actual Hours Actual Hours Standard Hours
× × ×
Actual Rate Standard Rate Standard Rate
2,500 hours 2,500 hours 2,400 hours
× $26,250× 2,500 hours ×
$10.50 per hour $10.00 per hour.
= $10.50 per hour $10.00 per hour
= $26,250 = $25,000 = $24,000
McGraw-Hill/Irwin Slide 44
Labor Variances Summary
Actual Hours Actual Hours Standard Hours
× × ×
Actual Rate Standard Rate Standard Rate
2,500 hours 2,500 hours 2,400 hours
× ×
1.2 hours per parka 2,000 ×
$10.50 per hour parkas
$10.00 per hour.
= 2,400 hours $10.00 per hour
= $26,250 = $25,000 = $24,000
McGraw-Hill/Irwin Slide 45
Labor Variances:
Using the Factored Equations
McGraw-Hill/Irwin Slide 46
Responsibility for Labor Variances
Quality of production
supervision.
Quality of training
provided to employees.
Production Manager
McGraw-Hill/Irwin Slide 47
Responsibility for Labor Variances
I think it took more time
to process the
I am not responsible for materials because the
the unfavorable labor Maintenance
efficiency variance! Department has poorly
maintained your
You purchased cheap
equipment.
material, so it took more
time to process it.
McGraw-Hill/Irwin Slide 48
Zippy
Quick Check
McGraw-Hill/Irwin Slide 49
Zippy
Quick Check
McGraw-Hill/Irwin Slide 50
Zippy
Quick Check
McGraw-Hill/Irwin Slide 51
Zippy
Quick Check
McGraw-Hill/Irwin Slide 52
Zippy
Quick Check
McGraw-Hill/Irwin Slide 53
Zippy
Quick Check
McGraw-Hill/Irwin Slide 55
Variable Manufacturing Overhead Variances
– An Example
McGraw-Hill/Irwin Slide 56
Variable Manufacturing Overhead Variances
Summary
Actual Hours Actual Hours Standard Hours
× × ×
Actual Rate Standard Rate Standard Rate
2,500 hours 2,500 hours 2,400 hours
× × ×
$4.20 per hour $4.00 per hour $4.00 per hour
= $10,500 = $10,000 = $9,600
McGraw-Hill/Irwin Slide 57
Variable Manufacturing Overhead Variances
Summary
Actual Hours Actual Hours Standard Hours
× × ×
Actual Rate Standard Rate Standard Rate
2,500 hours 2,500 hours 2,400 hours
× $10,500× 2,500 hours ×
$4.20 per hour $4.00 per per
= $4.20 hourhour $4.00 per hour
= $10,500 = $10,000 = $9,600
McGraw-Hill/Irwin Slide 58
Variable Manufacturing Overhead Variances
Summary
Actual Hours Actual Hours Standard Hours
× × ×
Actual Rate Standard Rate Standard Rate
2,500 hours 2,500 hours 2,400 hours
× ×
1.2 hours per parka 2,000 ×
$4.20 per hour parkas$4.00 per hour
= 2,400 hours $4.00 per hour
= $10,500 = $10,000 = $9,600
McGraw-Hill/Irwin Slide 59
Variable Manufacturing Overhead Variances:
Using Factored Equations
McGraw-Hill/Irwin Slide 60
Zippy
Quick Check
McGraw-Hill/Irwin Slide 61
Zippy
Quick Check
McGraw-Hill/Irwin Slide 62
Zippy
Quick Check
McGraw-Hill/Irwin Slide 63
Zippy
Quick Check
McGraw-Hill/Irwin Slide 64
Zippy
Quick Check