1. 13-1 Visit UMT online at www.umtweb.edu ACCT125© 2006 UMT ACCOUNTING FUNDAMENTALS FOR MANAGERS University of Management and Technology 1901 North Fort Myer Drive Arlington, VA 22209 Voice: (703) 516-0035 Fax: (703) 516-0985 Website: www.umtweb.edu

2. 13-2 Visit UMT online at www.umtweb.edu ACCT125© 2006 UMT Carl S. Warren Survey of Accounting (2 nd ed.) © 2004 South-Western

3. Visit UMT online at www.umtweb.edu 13-3 ACCT125© 2006 UMT Task Force Clip Art included in this electronic presentation is used with the permission of New Vision Technology of Nepean Ontario, Canada.

4. 13-4 Visit UMT online at www.umtweb.edu ACCT125© 2006 UMT Chapter 13 Budgeting and Standard Cost Systems

5. Visit UMT online at www.umtweb.edu 13-5 ACCT125© 2006 UMT ContinuedContinued Learning Objectives 1.Describe the nature and objectives of budgeting. 2.Describe the master budget for a manufacturing business. 3.Describe the nature and use of standards. 4.Explain and illustrate how standards are used in budgeting. After studying this chapter, you should be able to:

6. Visit UMT online at www.umtweb.edu 13-6 ACCT125© 2006 UMT Learning Objectives 5.Calculate and interpret the basic variances for direct materials and direct labor. 6.Explain how standards can be used for nonmanufacturing expenses. 7.Explain and provide examples of nonfinancial performance measures.

7. Visit UMT online at www.umtweb.edu 13-7 ACCT125© 2006 UMT 1 Describe the nature and objectives of budgeting. Learning Objective

8. Visit UMT online at www.umtweb.edu 13-8 ACCT125© 2006 UMT Nature and Objectives of Budgeting Establishing specific future goals Executing plans to achieve the goals Comparing actual results to the goals Setting budget goals too tightly Setting budget goals too loosely Setting conflicting budget goals Objectives of Budgeting Objectives of Budgeting Human Behavior and Budgeting Human Behavior and Budgeting

9. Visit UMT online at www.umtweb.edu 13-9 ACCT125© 2006 UMT Static Budgets A budget that does not reflect potential changes in volume or activity level Simpleall expenses are budgeted as fixed costs Does not reflect changes in revenues and expenses that occur as volumes change Service organizations or administrative departments of retailers and manufacturers Description: Strength: Weakness: Typical Usage:

10. Visit UMT online at www.umtweb.edu 13-10 ACCT125© 2006 UMT Flexible Budgets A budget that shows revenues and expenses for a variety of volumes or activity levels Provides information needed to analyze the impact of volume changes on actual operating results Requires greater research into costsmust differentiate fixed and variable costs Operational departments of retailers and manufacturers whose costs change with sales and production Description: Strength: Weakness: Typical Usage:

11. Visit UMT online at www.umtweb.edu 13-11 ACCT125© 2006 UMT Flexible Budgeting Colter Manufacturing Company Assembly Department Budget For the Month Ending July 31, 2003 Units of production8,0009,00010,000 Variable cost: Direct labor ($5 per unit)$40,000$45,000$50,000 Electricity ($0.5 per unit)4,0004,5005,000 Total variable cost$44,000$49,500$55,000 Cost per unit is $5.50 at all levels of activity

12. Visit UMT online at www.umtweb.edu 13-12 ACCT125© 2006 UMT Flexible Budgeting Colter Manufacturing Company Assembly Department Budget For the Month Ending July 31, 2003 Units of production8,0009,00010,000 Variable cost: Direct labor ($5 per unit)$40,000$45,000$50,000 Electricity ($0.5 per unit)4,0004,5005,000 Total variable cost$44,000$49,500$55,000 Fixed cost: Electric power$ 1,000$ 1,000$ 1,000 Supervisor salaries15,00015,00015,000 Total fixed cost$16,000$16,000$16,000

13. Visit UMT online at www.umtweb.edu 13-13 ACCT125© 2006 UMT Flexible Budgeting Colter Manufacturing Company Assembly Department Budget For the Month Ending July 31, 2003 Units of production8,0009,00010,000 Variable cost: Direct labor ($5 per unit)$40,000$45,000$50,000 Electricity ($0.5 per unit)4,0004,5005,000 Total variable cost$44,000$49,500$55,000 Fixed cost: Electric power$ 1,000$ 1,000$ 1,000 Supervisor salaries15,00015,00015,000 Total fixed cost$16,000$16,000$16,000 Total department costs$60,000$65,500$71,000

14. Visit UMT online at www.umtweb.edu 13-14 ACCT125© 2006 UMT Describe the master budget for a manufacturing business. 2 Learning Objective

15. Visit UMT online at www.umtweb.edu 13-15 ACCT125© 2006 UMT Sales Budget Sales Budget Income Statement Budgets

16. Visit UMT online at www.umtweb.edu 13-16 ACCT125© 2006 UMT Sales Budget Sales Budget Production Budget Income Statement Budgets Expected units of sales +Desired units in ending inventory - Estimated units in beginning inventory Total units to be produced

17. Visit UMT online at www.umtweb.edu 13-17 ACCT125© 2006 UMT Sales Budget Sales Budget Production Budget Income Statement Budgets Direct Materials Purchases Budget Direct Materials Purchases Budget Materials needed for production +Desired ending materials inventory - Estimated beginning materials inventory Direct materials to be purchased

18. Visit UMT online at www.umtweb.edu 13-18 ACCT125© 2006 UMT Sales Budget Sales Budget Production Budget Direct Labor Cost Budget Direct Labor Cost Budget Income Statement Budgets Direct Materials Purchases Budget Direct Materials Purchases Budget

19. Visit UMT online at www.umtweb.edu 13-19 ACCT125© 2006 UMT Sales Budget Sales Budget Production Budget Direct Labor Cost Budget Direct Labor Cost Budget Factory Overhead Cost Budget Factory Overhead Cost Budget Income Statement Budgets Direct Materials Purchases Budget Direct Materials Purchases Budget

20. Visit UMT online at www.umtweb.edu 13-20 ACCT125© 2006 UMT Sales Budget Sales Budget Production Budget Direct Labor Cost Budget Direct Labor Cost Budget Factory Overhead Cost Budget Factory Overhead Cost Budget Income Statement Budgets Direct Materials Purchases Budget Direct Materials Purchases Budget Cost of Goods Sold Budget Cost of Goods Sold Budget

21. Visit UMT online at www.umtweb.edu 13-21 ACCT125© 2006 UMT Sales Budget Sales Budget Production Budget Direct Labor Cost Budget Direct Labor Cost Budget Factory Overhead Cost Budget Factory Overhead Cost Budget Income Statement Budgets Direct Materials Purchases Budget Direct Materials Purchases Budget Cost of Goods Sold Budget Cost of Goods Sold Budget Selling & Administrative Expenses Budget Selling & Administrative Expenses Budget

22. Visit UMT online at www.umtweb.edu 13-22 ACCT125© 2006 UMT Elite Accessories Inc. Sales Budget For the Year Ending December 31, 2004 Wallet: East287,000$12.00$3,444,000 West241,00012.002,892,000 Total528,000$6,336,000 Unit SalesUnit SellingTotal Product and RegionVolumePriceSales How are these numbers determined?

23. Visit UMT online at www.umtweb.edu 13-23 ACCT125© 2006 UMT Elite Accessories Inc. Sales Budget For the Year Ending December 31, 2004 Unit SalesUnit SellingTotal Product and RegionVolumePriceSales Wallet: East287,000$12.00$3,444,000 West241,00012.002,892,000 Total528,000$6,336,000 Handbag: East156,400$25.00$3,910,000 West123,600 25.00 3,090,000 Total280,000$7,000,000

24. Visit UMT online at www.umtweb.edu 13-24 ACCT125© 2006 UMT Elite Accessories Inc. Sales Budget For the Year Ending December 31, 2004 Unit SalesUnit SellingTotal Product and RegionVolumePriceSales Wallet: East287,000$12.00$3,444,000 West241,00012.002,892,000 Total528,000$6,336,000 Handbag: East156,400$25.00$3,910,000 West123,600 25.00 3,090,000 Total280,000$7,000,000 Total sales revenue$13,336,000

25. Visit UMT online at www.umtweb.edu 13-25 ACCT125© 2006 UMT Elite Accessories Inc. Production Budget For the Year Ending December 31, 2004 Sales528,000280,000 Units WalletHandbag From sales budget

26. Visit UMT online at www.umtweb.edu 13-26 ACCT125© 2006 UMT Elite Accessories Inc. Production Budget For the Year Ending December 31, 2004 Units WalletHandbag Sales528,000280,000 Plus desired ending inventory, Dec. 31, 200380,00060,000 Total608,000340,000

27. Visit UMT online at www.umtweb.edu 13-27 ACCT125© 2006 UMT Elite Accessories Inc. Production Budget For the Year Ending December 31, 2004 Units WalletHandbag Sales528,000280,000 Plus desired ending inventory, Dec. 31, 200380,00060,000 Total608,000340,000 Less estimated beginning inventory, Jan. 1, 200388,00048,000 Total production520,000292,000

28. Visit UMT online at www.umtweb.edu 13-28 ACCT125© 2006 UMT Elite Accessories Inc. Direct Materials Purchases Budget For the Year Ending December 31, 2004 Units required for production: Wallet (Note A) 156,000 sq. yds. Handbag (Note B) 365,000 Note A: 520,000 units x 0.30 sq yd./unit = 156,000 sq. yds. Note B: 292,000 units x 1.25 sq. yds./unit = 365,000 sq yds. Leather

29. Visit UMT online at www.umtweb.edu 13-29 ACCT125© 2006 UMT Elite Accessories Inc. Direct Materials Purchases Budget For the Year Ending December 31, 2004 Leather Units required for production: Wallet (Note A) 156,000 sq. yds. Handbag (Note B)365,000 Plus desired inventory, Dec. 31, 200320,000 Total 541,000 sq. yds. Note A: 520,000 units x 0.30 sq yd./unit = 156,000 sq. yds. Note B: 292,000 units x 1.25 sq. yds./unit = 365,000 sq yds.

30. Visit UMT online at www.umtweb.edu 13-30 ACCT125© 2006 UMT Elite Accessories Inc. Direct Materials Purchases Budget For the Year Ending December 31, 2004 Leather Units required for production: Wallet (Note A) 156,000 sq. yds. Handbag (Note B)365,000 Plus desired inventory, Dec. 31, 200320,000 Total 541,000 sq. yds. Less estimated inventory, Jan. 1, 200318,000 Total square yards to be purchased 523,000 sq yds. Note A: 520,000 units x 0.30 sq yd./unit = 156,000 sq. yds. Note B: 292,000 units x 1.25 sq. yds./unit = 365,000 sq yds.

31. Visit UMT online at www.umtweb.edu 13-31 ACCT125© 2006 UMT Elite Accessories Inc. Direct Materials Purchases Budget For the Year Ending December 31, 2004 Leather Units required for production: Wallet (Note A) 156,000 sq. yds. Handbag (Note B)365,000 Plus desired inventory, Dec. 31, 200320,000 Total 541,000 sq. yds. Less estimated inventory, Jan. 1, 200318,000 Total square yards to be purchased 523,000 sq yds. Unit price x $ 4.50 Total direct materials purchased $2,353,500 Note A: 520,000 units x 0.30 sq yd./unit = 156,000 sq. yds. Note B: 292,000 units x 1.25 sq. yds./unit = 365,000 sq yds.

32. Visit UMT online at www.umtweb.edu 13-32 ACCT125© 2006 UMT Elite Accessories Inc. Direct Labor Cost Budget For the Year Ending December 31, 2004 Hours required for production: Wallet (Note A)52,000130,000 Handbag (Note B)43,800116,800 Note A:Cutting Dept.: 520,000 units x 0.10 hrs. per unit = 52,000 hrs. Sewing Dept.: 520,000 units x 0.25 hrs. per unit = 130,000 hrs. Note B:Cutting Dept.: 292,000 units x 0.15 hrs. per unit = 43,800 hrs. Sewing Dept.: 292,000 units x 0.40 hrs. per unit = 116,800 hrs. CuttingSewingTotal

33. Visit UMT online at www.umtweb.edu 13-33 ACCT125© 2006 UMT Elite Accessories Inc. Direct Labor Cost Budget For the Year Ending December 31, 2004 CuttingSewingTotal Hours required for production: Wallet (Note A)52,000130,000 Handbag (Note B)43,800116,800 Total95,800246,800 Hourly ratex $12x $15 Note A:Cutting Dept.: 520,000 units x 0.10 hrs. per unit = 52,000 hrs. Sewing Dept.: 520,000 units x 0.25 hrs. per unit = 130,000 hrs. Note B:Cutting Dept.: 292,000 units x 0.15 hrs. per unit = 43,800 hrs. Sewing Dept.: 292,000 units x 0.40 hrs. per unit = 116,800 hrs.

34. Visit UMT online at www.umtweb.edu 13-34 ACCT125© 2006 UMT Elite Accessories Inc. Direct Labor Cost Budget For the Year Ending December 31, 2004 CuttingSewingTotal Hours required for production: Wallet (Note A)52,000130,000 Handbag (Note B)43,800116,800 Total95,800246,800 Hourly ratex $12x $15 Total direct labor cost$1,149,600$3,702,000$4,851,600 Note A:Cutting Dept.: 520,000 units x 0.10 hrs. per unit = 52,000 hrs. Sewing Dept.: 520,000 units x 0.25 hrs. per unit = 130,000 hrs. Note B:Cutting Dept.: 292,000 units x 0.15 hrs. per unit = 43,800 hrs. Sewing Dept.: 292,000 units x 0.40 hrs. per unit = 116,800 hrs.

35. Visit UMT online at www.umtweb.edu 13-35 ACCT125© 2006 UMT Elite Accessories Inc. Factory Overhead Cost Budget For the Year Ending December 31, 2004 Indirect factory wages$ 732,800 Supervisor salaries360,000 Power and light306,000 Depreciation of plant and equipment288,000 Indirect materials182,800 Maintenance140,280 Insurance and property taxes79,200

36. Visit UMT online at www.umtweb.edu 13-36 ACCT125© 2006 UMT Elite Accessories Inc. Factory Overhead Cost Budget For the Year Ending December 31, 2004 Indirect factory wages$ 732,800 Supervisory salaries360,000 Power and light306,000 Depreciation of plant and equipment288,000 Indirect materials182,800 Maintenance140,280 Insurance and property taxes79,200 Total factory overhead cost$2,089,080

37. Visit UMT online at www.umtweb.edu 13-37 ACCT125© 2006 UMT Elite Accessories Inc. Budgeted Income Statement For the Year Ending December 31, 2004 Revenue from sales $13,336,000 Cost of goods sold9,047,780 Gross profit$4,288,220 Selling & admin. expenses: Selling expenses$1,190,000 Administrative expenses695,000 Total sell. & admin. exp.1,885,000 Income from operations$2,403,220 Other income: Interest revenue$ 98,000 Other expense: Interest expense90,0008,000 Income before income tax$2,411,220 Income tax600,000 Net income$1,811,220

38. Visit UMT online at www.umtweb.edu 13-38 ACCT125© 2006 UMT Elite Accessories Inc. Budgeted Income Statement For the Year Ending December 31, 2004 Revenue from sales $13,336,000 Cost of goods sold9,047,780 Gross profit$4,288,220 Selling & admin. expenses: Selling expenses$1,190,000 Administrative expenses695,000 Total sell. & admin. exp.1,885,000 Income from operations$2,403,220 Other income: Interest revenue$ 98,000 Other expense: Interest expense90,0008,000 Income before income tax$2,411,220 Income tax600,000 Net income$1,811,220

39. Visit UMT online at www.umtweb.edu 13-39 ACCT125© 2006 UMT Elite Accessories Inc. Budgeted Income Statement For the Year Ending December 31, 2004 Revenue from sales $13,336,000 Cost of goods sold9,047,780 Gross profit$4,288,220 Selling & admin. expenses: Selling expenses$1,190,000 Administrative expenses695,000 Total sell. & admin. exp.1,885,000 Income from operations$2,403,220 Other income: Interest revenue$ 98,000 Other expense: Interest expense90,0008,000 Income before income tax$2,411,220 Income tax600,000 Net income$1,811,220

40. Visit UMT online at www.umtweb.edu 13-40 ACCT125© 2006 UMT Elite Accessories Inc. Budgeted Income Statement For the Year Ending December 31, 2004 Revenue from sales $13,336,000 Cost of goods sold9,047,780 Gross profit$4,288,220 Selling & admin. expenses: Selling expenses$1,190,000 Administrative expenses695,000 Total sell. & admin. exp.1,885,000 Income from operations$2,403,220 Other income: Interest revenue$ 98,000 Other expense: Interest expense90,0008,000 Income before income tax$2,411,220 Income tax600,000 Net income$1,811,220

41. Visit UMT online at www.umtweb.edu 13-41 ACCT125© 2006 UMT Elite Accessories Inc. Schedule of Collections from Sales For the Three Months Ending March 31, 2004 Budgeted sales$1,080,000$1,240,000$970,000 Cash sales (10%)108,000124,00097,000 Credit sales (90%)$972,000$1,116,000$873,000 JanuaryFebruaryMarch

42. Visit UMT online at www.umtweb.edu 13-42 ACCT125© 2006 UMT Elite Accessories Inc. Schedule of Collections from Sales For the Three Months Ending March 31, 2004 Budgeted sales$1,080,000$1,240,000$970,000 Cash sales (10%)108,000124,00097,000 Credit sales (90%)$972,000$1,116,000$873,000 Collections on account: Current month (60%)$583,200$669,600$523,800 JanuaryFebruaryMarch

43. Visit UMT online at www.umtweb.edu 13-43 ACCT125© 2006 UMT Elite Accessories Inc. Schedule of Collections from Sales For the Three Months Ending March 31, 2004 Budgeted sales$1,080,000$1,240,000$970,000 Cash sales (10%)108,000124,00097,000 Credit sales (90%)$972,000$1,116,000$873,000 Collections on account: Current month (60%)$583,200$669,600$523,800 Prior month (40%)370,000388,800446,400 Total on account$953,200$1,058,400$970,200 JanuaryFebruaryMarch

44. Visit UMT online at www.umtweb.edu 13-44 ACCT125© 2006 UMT Elite Accessories Inc. Schedule of Collections from Sales For the Three Months Ending March 31, 2004 JanuaryFebruaryMarch Budgeted sales$1,080,000$1,240,000$970,000 Cash sales (10%)108,000124,00097,000 Credit sales (90%)$972,000$1,116,000$873,000 Collections on account: Current month (60%)$583,200$669,600$523,800 Prior month (40%)370,000388,800446,400 Total on account$953,200$1,058,400$970,200 Plus cash sales 108,000124,00097,000 Total collections$1,061,200$1,182,400$1,067,200

45. Visit UMT online at www.umtweb.edu 13-45 ACCT125© 2006 UMT Elite Accessories Inc. Cash Budget For the Three Months Ending March 31, 2004 Estimated cash receipts: Cash sales$108,000$124,000$97,000 Accounts receivable953,2001,058,400970,200 Interest Revenue 24,500 Total cash receipts$1,061,200$1,182,400$1,091,700 JanuaryFebruaryMarch

46. Visit UMT online at www.umtweb.edu 13-46 ACCT125© 2006 UMT Elite Accessories Inc. Cash Budget For the Three Months Ending March 31, 2004 Estimated cash receipts: Cash sales$108,000$124,000$97,000 Accounts receivable953,2001,058,400970,200 Interest Revenue 24,500 Total cash receipts$1,061,200$1,182,400$1,091,700 Estimated cash payments: Manufacturing costs$802,000$771,000$780,000 Selling & administrative exp.160,000165,000145,000 Capital additions274,000 Interest expense22,500 Income taxes 150,000 Total cash payments$984,500$1,210,000$1,075,000 JanuaryFebruaryMarch

47. Visit UMT online at www.umtweb.edu 13-47 ACCT125© 2006 UMT Estimated cash receipts: Cash sales$108,000$124,000$97,000 Accounts receivable953,2001,058,400970,200 Interest Revenue 24,500 Total cash receipts$1,061,200$1,182,400$1,091,700 Estimated cash payments: Manufacturing costs$802,000$771,000$780,000 Selling & administrative exp.160,000165,000145,000 Capital additions274,000 Interest expense22,500 Income taxes 150,000 Total cash payments$984,500$1,210,000$1,075,000 Cash increase (decrease)$76,700$(27,600)$16,700 Elite Accessories Inc. Cash Budget For the Three Months Ending March 31, 2004 JanuaryFebruaryMarch

48. Visit UMT online at www.umtweb.edu 13-48 ACCT125© 2006 UMT Estimated cash receipts: Cash sales$108,000$124,000$97,000 Accounts receivable953,2001,058,400970,200 Interest Revenue 24,500 Total cash receipts$1,061,200$1,182,400$1,091,700 Estimated cash payments: Manufacturing costs$802,000$771,000$780,000 Selling & administrative exp.160,000165,000145,000 Capital additions274,000 Interest expense22,500 Income taxes 150,000 Total cash payments$984,500$1,210,000$1,075,000 Cash increase (decrease)$76,700$(27,600)$16,700 Beginning cash balance280,000356,700329,100 Ending cash balance$356,700 329,100$345,800 Elite Accessories Inc. Cash Budget For the Three Months Ending March 31, 2004 JanuaryFebruaryMarch

49. Visit UMT online at www.umtweb.edu 13-49 ACCT125© 2006 UMT Estimated cash receipts: Cash sales$108,000$124,000$97,000 Accounts receivable953,2001,058,400970,200 Interest Revenue 24,500 Total cash receipts$1,061,200$1,182,400$1,091,700 Estimated cash payments: Manufacturing costs$802,000$771,000$780,000 Selling & administrative exp.160,000165,000145,000 Capital additions274,000 Interest expense22,500 Income taxes 150,000 Total cash payments$984,500$1,210,000$1,075,000 Cash increase (decrease)$76,700$(27,600)$16,700 Beginning cash balance280,000356,700329,100 Ending cash balance$356,700 329,100$345,800 Minimum cash balance340,000340,000340,000 Excess (deficiency)$16,700$ (10,900)$ 5,800 Elite Accessories Inc. Cash Budget For the Three Months Ending March 31, 2004 JanuaryFebruaryMarch

50. Visit UMT online at www.umtweb.edu 13-50 ACCT125© 2006 UMT Describe the nature and use of standards. 3 Learning Objective

51. Visit UMT online at www.umtweb.edu 13-51 ACCT125© 2006 UMT Standards Performance Benchmarks Requires joint efforts of accountants, engineers, and other management personnel. Theoretical standards (ideal standards). Currently attainable standards (normal standards). Should be revised when they no longer reflect operating conditions they intended to measure. Setting Standards Reviewing and Revising Standards Types of Standards

52. Visit UMT online at www.umtweb.edu 13-52 ACCT125© 2006 UMT Explain and illustrate how standards are used in budgeting. 4 Learning Objective

53. Visit UMT online at www.umtweb.edu 13-53 ACCT125© 2006 UMT Western Rider Inc. Standard Cost per Pair of XL Jeans $5.00 per square yard x 1.5 square yards $7.50 $9.00 per hour x.80 hours per pair7.20 $6.00 per hour x.80 hours per pair4.80 Total standard cost per pair$19.50 Direct Materials: Direct Labor: Factory Overhead:

54. Visit UMT online at www.umtweb.edu 13-54 ACCT125© 2006 UMT Western Rider Inc. Budget Performance Report For the Month Ended June 30, 2004 Direct materials$40,150$37,500$2,650 Direct labor38,50036,0002,500 Factory overhead22,40024,000 (1,600) Total mfg. costs$101,050$97,500$3,550 ActualFlexibleCost Manufacturing CostsCostsBudgetVariance

55. Visit UMT online at www.umtweb.edu 13-55 ACCT125© 2006 UMT Calculate and interpret the basic variances for direct materials and direct labor. 5 Learning Objective

56. Visit UMT online at www.umtweb.edu 13-56 ACCT125© 2006 UMT Direct Materials Variance Report For the Month Ended June 30, 2004 Square yards per unit 1.50 Total units producedx 5,000 Total yards7,500 Price per yardx $5.00 Total dollars$37,500 DescriptionStandardActualVariance The standard is based on the actual units produced.

57. Visit UMT online at www.umtweb.edu 13-57 ACCT125© 2006 UMT Direct Materials Variance Report For the Month Ended June 30, 2004 Square yards per unit1.50 Total units producedx 5,000 Total yards7,500 Price per yardx $5.00 Total dollars$37,500 DescriptionStandardActualVariance $5.00 price quantity $37,500 7,500 The total of this box is: $5.00 x 7,500 yards

58. Visit UMT online at www.umtweb.edu 13-58 ACCT125© 2006 UMT Direct Materials Variance Report For the Month Ended June 30, 2004 Square yards per unit1.50 1.46.04F (quantity) Total units producedx 5,000x 5,000 Total yards7,5007,300 200 F (quantity) Price per yardx $5.00x $5.50$.50U (price) Total dollars$37,500$40,150$2,650U (total) DescriptionStandardActualVariance Actual results are: 200 yards under standard $.50 per yard over standard $2,650 over standard Actual results are: 200 yards under standard $.50 per yard over standard $2,650 over standard

59. Visit UMT online at www.umtweb.edu 13-59 ACCT125© 2006 UMT Direct Materials Variance Report For the Month Ended June 30, 2004 Square yards per unit1.50 1.46.04F (quantity) Total units producedx 5,000x 5,000 Total yards7,5007,300 200 F (quantity) Price per yardx $5.00x $5.50$.50U (price) Total dollars$37,500$40,150$2,650U (total) DescriptionStandardActualVariance $5.50 price quantity $40,150 7,300 The total of this box is: $5.50 x 7,300 yards Actual cost.

60. Visit UMT online at www.umtweb.edu 13-60 ACCT125© 2006 UMT Direct Materials Variance Report For the Month Ended June 30, 2004 Square yards per unit1.50 1.46.04F (quantity) Total units producedx 5,000x 5,000 Total yards7,5007,300 200 F (quantity) Price per yardx $5.00x $5.50$.50U (price) Total dollars$37,500$40,150$2,650U (total) DescriptionStandardActualVariance $5.50 $5.00 price quantity $3,650 7,3007,500 Who is responsible for an unfavorable price variance? Unfavorable price variance ($.50 x 7,300 yards) Unfavorable price variance ($.50 x 7,300 yards)

61. Visit UMT online at www.umtweb.edu 13-61 ACCT125© 2006 UMT Direct Materials Variance Report For the Month Ended June 30, 2004 Square yards per unit1.50 1.46.04F (quantity) Total units producedx 5,000x 5,000 Total yards7,5007,300 200 F (quantity) Price per yardx $5.00x $5.50$.50U (price) Total dollars$37,500$40,150$2,650U (total) DescriptionStandardActualVariance $5.50 $5.00 price quantity $1,000 7,3007,500 Who is responsible for a favorable quantity variance? Favorable quantity variance (200 yards x $5.00) Favorable quantity variance (200 yards x $5.00)

62. Visit UMT online at www.umtweb.edu 13-62 ACCT125© 2006 UMT Direct Materials Variance Report For the Month Ended June 30, 2004 Square yards per unit1.50 1.46.04F (quantity) Total units producedx 5,000x 5,000 Total yards7,5007,300 200 F (quantity) Price per yardx $5.00x $5.50$.50U (price) Total dollars$37,500$40,150$2,650U (total) DescriptionStandardActualVariance $5.50 $5.00 price quantity $3,650 $1,000 7,3007,500 Unfavorable price variance ($.50 x 7,300 yards) Unfavorable price variance ($.50 x 7,300 yards) Favorable quantity variance (200 yards x $5.00) Favorable quantity variance (200 yards x $5.00)

63. Visit UMT online at www.umtweb.edu 13-63 ACCT125© 2006 UMT Direct Labor Variance Report For the Month Ended June 30, 2004 Hours per unit.80 Total units producedx 5,000 Total hours4,000 Rate per hourx $9.00 Total dollars $36,000 DescriptionStandardActualVariance The standard is based on the actual units produced.

64. Visit UMT online at www.umtweb.edu 13-64 ACCT125© 2006 UMT Direct Labor Variance Report For the Month Ended June 30, 2004 Hours per unit.80 Total units producedx 5,000 Total hours4,000 Rate per hourx $9.00 Total dollars$36,000 DescriptionStandardActualVariance $9.00 rates hours $36,000 4,000 The total of this box is: $9.00 x 4,000 hours

65. Visit UMT online at www.umtweb.edu 13-65 ACCT125© 2006 UMT Direct Labor Variance Report For the Month Ended June 30, 2004 Hours per unit.80.77.03F (time) Total units producedx 5,000x 5,000 Total hours4,0003,850150 F (time) Rate per hourx $9.00x $10.00$1.00U (rate) Total dollars$36,000$38,500$2,500U (total DescriptionStandardActualVariance Actual results are: 150 hours under standard $1.00 per hour over standard $2,500 over standard Actual results are: 150 hours under standard $1.00 per hour over standard $2,500 over standard

66. Visit UMT online at www.umtweb.edu 13-66 ACCT125© 2006 UMT Direct Labor Variance Report For the Month Ended June 30, 2004 Hours per unit.80.77.03F (time) Total units producedx 5,000x 5,000 Total hours4,0003,850150 F (time) Rate per hourx $9.00x $10.00$1.00U (rate) Total dollars$36,000$38,500$2,500U (total DescriptionStandardActualVariance $10.00 rates hours $38,500 3,850 The total of this box is: $10.00 x 3,850 hours Actual cost.

67. Visit UMT online at www.umtweb.edu 13-67 ACCT125© 2006 UMT Direct Labor Variance Report For the Month Ended June 30, 2004 Hours per unit.80.77.03F (time) Total units producedx 5,000x 5,000 Total hours4,0003,850 150 F (time) Rate per hourx $9.00x $10.00$1.00U (rate) Total dollars$36,000$38,500$2,500U (total) DescriptionStandardActualVariance $10.00 $9.00 rates hours $3,850 3,8504,000 Unfavorable rate variance ($1.00 x 3,850 hours) Unfavorable rate variance ($1.00 x 3,850 hours) Who is responsible for an unfavorable rate variance?

68. Visit UMT online at www.umtweb.edu 13-68 ACCT125© 2006 UMT Direct Labor Variance Report For the Month Ended June 30, 2004 Hours per unit.80.77.03F (time) Total units producedx 5,000x 5,000 Total hours4,0003,850 150 F (time) Rate per hourx $9.00x $10.00$1.00U (rate) Total dollars$36,000$38,500$2,500U (total) DescriptionStandardActualVariance $10.00 $9.00 rates hours 3,8504,000 Who is responsible for a favorable time variance? $1,350 Favorable time variance (150 hours x $9.00) Favorable time variance (150 hours x $9.00)

69. Visit UMT online at www.umtweb.edu 13-69 ACCT125© 2006 UMT Direct Labor Variance Report For the Month Ended June 30, 2004 Hours per unit.80.77.03F (time) Total units producedx 5,000x 5,000 Total hours4,0003,850 150 F (time) Rate per hourx $9.00x $10.00$1.00U (rate) Total dollars$36,000$38,500$2,500U (total) DescriptionStandardActualVariance $10.00 $9.00 rates hours $3,850 $1,350 3,8504,000 Unfavorable rate variance ($1.00 x 3,850 hours) Unfavorable rate variance ($1.00 x 3,850 hours) Favorable time variance (150 hours x $9.00) Favorable time variance (150 hours x $9.00)

70. Visit UMT online at www.umtweb.edu 13-70 ACCT125© 2006 UMT Explain how standards can be used for nonmanufacturing expenses. 6 Learning Objective

71. Visit UMT online at www.umtweb.edu 13-71 ACCT125© 2006 UMT Standard cost to process sales order - Actual cost to process sales order Variance Standards for Nonmanufacturing Expenses

72. Visit UMT online at www.umtweb.edu 13-72 ACCT125© 2006 UMT Explain and provide examples of nonfinancial performance measures. 7 Learning Objective

73. Visit UMT online at www.umtweb.edu 13-73 ACCT125© 2006 UMT Employee Training Employee Experience Number of new menu items Number of employees Fryer reliability Fountain supply availability Employee Training Employee Experience Number of new menu items Number of employees Fryer reliability Fountain supply availability Counter service Line wait Percent order accuracy Friendly service score Line wait Percent order accuracy Friendly service score Nonfinancial Performance Measures of a Fast-Food Restaurant