Power Notes Chapter M6 Performance Evaluation, Variances from Standards Learning Objectives 1. Standards 2. Budgetary Performance Evaluation 3. Direct.

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Power Notes Chapter M6 Performance Evaluation, Variances from Standards Learning Objectives 1. Standards 2. Budgetary Performance Evaluation 3. Direct Materials Variances 4. Direct Labor Variances 5. Factory Overhead Variances 6. Recording and Reporting Variances from Standards 7. Standards for Nonmanufacturing Expenses 8. Nonfinancial Performance Measures C6

Power Notes Chapter M6 Performance Evaluation, Variances from Standards Slide # Power Note Topics 3 6 13 20 Standard Costs, Performance Reports Direct Materials Variances Direct Labor Variances Factory Overhead Variances Note: To select a topic, type the slide # and press Enter.

Standards — Performance Benchmarks Setting Standards 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. Types of Standards Reviewing and Revising Standards

Standard Cost per Pair of XL Jeans Western Rider Inc. Standard Cost per Pair of XL Jeans Direct Materials: $5.00 per square yard x 1.5 square yards $7.50 $9.00 per hour x .80 hours per pair 7.20 $6.00 per hour x .80 hours per pair 4.80 Total standard cost per pair $19.50 Direct Labor: Factory Overhead:

Budget Performance Report For the Month Ended June 30, 2003 Western Rider Inc. Budget Performance Report For the Month Ended June 30, 2003 Actual Flexible Cost Manufacturing Costs Costs Budget Variance Direct materials $40,150 $37,500 $2,650 Direct labor 38,500 36,000 2,500 Factory overhead 22,400 24,000 (1,600) Total mfg. costs $101,050 $97,500 $3,550

Direct Materials Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Square yards per unit 1.50 Total units produced x 5,000 Total yards 7,500 Price per yard x $5.00 Total dollars $37,500 The standard is based on the actual units produced.

Direct Materials Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Square yards per unit 1.50 Total units produced x 5,000 Total yards 7,500 Price per yard x $5.00 Total dollars $37,500 $5.00 The total of this box is: $5.00 x 7,500 yards price $37,500 quantity 7,500

Direct Materials Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Square yards per unit 1.50 1.46 .04 F (quantity) Total units produced x 5,000 x 5,000 Total yards 7,500 7,300 200 F (quantity) Price per yard x $5.00 x $5.50 $.50 U (price) Total dollars $37,500 $40,150 $2,650 U (total) Actual results are: 200 yards under standard $.50 per yard over standard $2,650 over standard

Direct Materials Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Square yards per unit 1.50 1.46 .04 F (quantity) Total units produced x 5,000 x 5,000 Total yards 7,500 7,300 200 F (quantity) Price per yard x $5.00 x $5.50 $.50 U (price) Total dollars $37,500 $40,150 $2,650 U (total) $5.50 Actual cost. $40,150 The total of this box is: $5.50 x 7,300 yards price quantity 7,300

Direct Materials Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Square yards per unit 1.50 1.46 .04 F (quantity) Total units produced x 5,000 x 5,000 Total yards 7,500 7,300 200 F (quantity) Price per yard x $5.00 x $5.50 $.50 U (price) Total dollars $37,500 $40,150 $2,650 U (total) Unfavorable price variance ($.50 x 7,300 yards) $5.50 $3,650 $5.00 Who is responsible for an unfavorable price variance? price quantity 7,300 7,500

Direct Materials Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Square yards per unit 1.50 1.46 .04 F (quantity) Total units produced x 5,000 x 5,000 Total yards 7,500 7,300 200 F (quantity) Price per yard x $5.00 x $5.50 $.50 U (price) Total dollars $37,500 $40,150 $2,650 U (total) Who is responsible for a favorable quantity variance? $5.50 $5.00 Favorable quantity variance (200 yards x $5.00) price $1,000 quantity 7,300 7,500

Direct Materials Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Square yards per unit 1.50 1.46 .04 F (quantity) Total units produced x 5,000 x 5,000 Total yards 7,500 7,300 200 F (quantity) Price per yard x $5.00 x $5.50 $.50 U (price) Total dollars $37,500 $40,150 $2,650 U (total) Unfavorable price variance ($.50 x 7,300 yards) $5.50 $3,650 $5.00 Favorable quantity variance (200 yards x $5.00) price $1,000 quantity 7,300 7,500

Direct Labor Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Hours per unit .80 Total units produced x 5,000 Total hours 4,000 Rate per hour x $9.00 Total dollars $36,000 The standard is based on the actual units produced.

Direct Labor Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Hours per unit .80 Total units produced x 5,000 Total hours 4,000 Rate per hour x $9.00 Total dollars $36,000 $9.00 The total of this box is: $9.00 x 4,000 hours rates $36,000 hours 4,000

Direct Labor Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Hours per unit .80 .77 .03 F (time) Total units produced x 5,000 x 5,000 Total hours 4,000 3,850 150 F (time) Rate per hour x $9.00 x $10.00 $1.00 U (rate) Total dollars $36,000 $38,500 $2,500 U (total Actual results are: 150 hours under standard $1.00 per hour over standard $2,500 over standard

Direct Labor Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Hours per unit .80 .77 .03 F (time) Total units produced x 5,000 x 5,000 Total hours 4,000 3,850 150 F (time) Rate per hour x $9.00 x $10.00 $1.00 U (rate) Total dollars $36,000 $38,500 $2,500 U (total $10.00 Actual cost. $38,500 The total of this box is: $10.00 x 3,850 hours rates hours 3,850

Direct Labor Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Hours per unit .80 .77 .03 F (time) Total units produced x 5,000 x 5,000 Total hours 4,000 3,850 150 F (time) Rate per hour x $9.00 x $10.00 $1.00 U (rate) Total dollars $36,000 $38,500 $2,500 U (total) Unfavorable rate variance ($1.00 x 3,850 hours) $10.00 $3,850 $9.00 Who is responsible for an unfavorable rate variance? rates hours 3,850 4,000

Direct Labor Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Hours per unit .80 .77 .03 F (time) Total units produced x 5,000 x 5,000 Total hours 4,000 3,850 150 F (time) Rate per hour x $9.00 x $10.00 $1.00 U (rate) Total dollars $36,000 $38,500 $2,500 U (total) Who is responsible for a favorable time variance? $10.00 $9.00 Favorable time variance (150 hours x $9.00) rates $1,350 hours 3,850 4,000

Direct Labor Variance Report For the Month Ended June 30, 2003 Description Standard Actual Variance Hours per unit .80 .77 .03 F (time) Total units produced x 5,000 x 5,000 Total hours 4,000 3,850 150 F (time) Rate per hour x $9.00 x $10.00 $1.00 U (rate) Total dollars $36,000 $38,500 $2,500 U (total) Unfavorable rate variance ($1.00 x 3,850 hours) $10.00 $3,850 $9.00 Favorable time variance (150 hours x $9.00) rates $1,350 hours 3,850 4,000

Factory Overhead Cost Budget For the Month Ended June 30, 2003 Western Rider Inc. Factory Overhead Cost Budget For the Month Ended June 30, 2003 Direct Labor Hours 4,000 4,500 5,000 Total variable costs $14,400 $16,200 $18,000 Variable costs per hour $ 3.60 $ 3.60 $3.60 Total fixed costs $12,000 $12,000 $12,000 Fixed costs per hour $ 3.00 $ 2.67 $ 2.40 Total costs per hour $ 6.60 $ 6.27 $ 6.00 Overhead is applied at $6.00 per direct labor hour based on estimated 5,000 total hours.

Factory Overhead Variances For the Month Ended June 30, 2003 Western Rider Inc. Factory Overhead Variances For the Month Ended June 30, 2003 Revised Actual Budget Costs Variance Variable costs $14,400 $10,400 $4,000 F ($3.60 x 4,000 hours) Fixed costs 9,600 12,000 2,400 U ($2.40 x 4,000 hours) Total costs $24,000 $22,400 $1,600 F Factory overhead applied at $6.00 per direct labor hour based on 4,000 actual hours. Actual factory overhead per general ledger.

Factory Overhead Variances For the Month Ended June 30, 2003 Western Rider Inc. Factory Overhead Variances For the Month Ended June 30, 2003 Revised Actual Budget Costs Variance Variable costs $14,400 $10,400 $4,000 F ($3.60 x 4,000 hours) Fixed costs 9,600 12,000 2,400 U ($2.40 x 4,000 hours) Total costs $24,000 $22,400 $1,600 F Controllable variance based on variable costs

Factory Overhead Variances For the Month Ended June 30, 2003 Western Rider Inc. Factory Overhead Variances For the Month Ended June 30, 2003 Revised Actual Budget Costs Variance Variable costs $14,400 $10,400 $4,000 F ($3.60 x 4,000 hours) Fixed costs 9,600 12,000 2,400 U ($2.40 x 4,000 hours) Total costs $24,000 $22,400 $1,600 F Volume variance based on fixed costs

Actual variable overhead $10,400 Budgeted variable overhead 14,400 Variable Factory Overhead Controllable Variance For the Month Ended June 30, 2003 Actual variable overhead $10,400 Budgeted variable overhead 14,400 (4,000 actual hours x $3.60) Favorable controllable variance $(4,000) Controllable variance measures the efficiency of using variable overhead resources. A revised budget based on the actual hours used

Budgeted volume (direct labor hours) 5,000 Fixed Factory Overhead Volume Variance For the Month Ended June 30, 2003 Budgeted volume (direct labor hours) 5,000 Actual volume (direct labor hours) 4,000 Capacity not used (direct labor hours) 1,000 Standard fixed rate x $2.40 Unfavorable volume variance $2,400 Volume variance measures the utilization of fixed overhead resources. Rate based on 5,000 direct labor hours.

Power Notes This is the last slide in Chapter M6. Chapter M6 Performance Evaluation, Variances from Standards This is the last slide in Chapter M6. Note: To see the topic slide, type 2 and press Enter.