Variance Analysis
advertisement
Variance Analysis © Imparano, Inc MMVII Required: Assume the role of Carl Holitzner and provide an explanation for FFL's lower than budgeted profit for the fiscal year ended May 31, 2002. Support your p with a explanation detailed variance analysis. y Reconcile the Budget / Forecast to the Actual results. © Imparano, Inc MMVII Sales Volume Variance Sales Quantity Variance Market size ACCT 422 Market share Sales Mix Variance Sales Price Variance Variable Cost Variances Materials Variance Materials Price Materials Usage Materials Yield Materials Mix ACCT 422 Labor Variance Labor Rate Labor Efficiency Labor Yield ACCT 422 Labor Mix Variable O/H Variance Variable OH Rate Variable OH Efficiency Fixed Cost Spending Variance Total Variance © Imparano, Inc MMVII 1 Variance Analysis requires and understanding of: ² Product flow assumptions. ² Standard costing systems. systems ² Cost - Volume - Profit. ² Absorption and Direct costing. © Imparano, Inc MMVII Product Flow Materials Raw Work in Finished Material g Progress Goods Labor Overhead © Imparano, Inc MMVII Product Flow Materials Raw Work in Finished Material g Progress Goods Conversion Costs © Imparano, Inc MMVII 2 Costing VariableVariable / Direct Costing Materials Raw Work in Finished Material g Progress Goods Labor Variable Overhead Fixed Overhead © Imparano, Inc MMVII Absorption Costing Absorption Costing Materials Raw Work in Finished Material g Progress Goods Labor Variable Overhead Fixed Overhead © Imparano, Inc MMVII Product Flow Materials Raw Work in Finished Material Progress Goods Labour Overhead © V irtua l Corp or atio n, 20 00 © Imparano, Inc MMVII 3 PROBLEM: Product Flow Materials Raw Work in Finished Material Progress Goods Cost accountants required an effective way to cost product on a timely basis. Labour Overhead © V irtua l Corp or atio n, 20 00 SOLUTION: Standard cost systems © Imparano, Inc MMVII Standard Cost Systems: z Represent per unit budgets, targets &/or engineered amounts z Determine unit costs in advance (usually annual) z Used to measure income / financial performance © Imparano, Inc MMVII Standard Cost Card Standard cost of a widget: Materials (5 kg @ $6.00 per) $ 30.00 Labor (2 hours @ $20.00 per) 40.00 V factory O/H 20.00 F factory O/H 15.00 Total cost@Standard $ 105.00 © Imparano, Inc MMVII 4 Standard Cost Card Standard cost of a widget: Materials (5 kg @ $6.00 per) $ 30.00 Labor (2 hours @ $20.00 per) 40.00 V factory O/H 20.00 F factory O/H 15.00 Total cost@Standard Number of input units per output unit $ 105.00 © Imparano, Inc MMVII Standard Cost Card Standard cost of a widget: Materials (5 kg @ $6.00 per) $ 30.00 Labor (2 hours @ $20.00 per) 40.00 V factory O/H 20.00 F factory O/H 15.00 Total cost@Standard Cost per unit of input $ 105.00 © Imparano, Inc MMVII Standard Cost - G/L Accts Labor incurred Labor applied V F O/H incurred V F O/H applied F F O/H incurred F F O/H applied © Imparano, Inc MMVII 5 Standard Cost - G/L Accts Labor incurred Labor applied 42.00 40.00 1.6 hours @ $26.25 1 unit @ std. © Imparano, Inc MMVII Standard Cost - G/L Accts Labor incurred Labor applied 42.00 40.00 The $2.00 DR difference is the variance © Imparano, Inc MMVII Standard Cost - G/L Accts Labor incurred 42.00 Labor applied 40.00 Efficiency (2.0 hours - 1.6 hours) * $20.00/hr = $8.00 Fav (or CR) Price/Rate ($20.00/hr - 26.25/hr)* 1.6 hours = $10 Unfav (DR) © Imparano, Inc MMVII 6 Variance Analysis Budget Actual Units Sales VC Units OBJECTIVE: Sales g to Reconcile Budget Actual VC CM CM FC FC Profit Profit © Imparano, Inc MMVII Variance Analysis Budget Actual Units First Step Sales Units Sales VC VC CM CM FC Profit FC Change in Profit Profit © Imparano, Inc MMVII Total Variance = $367,600 Unfavorable © Imparano, Inc MMVII 7 Variance Analysis Budget Actual Units Sales VC CM Units Sales How much would we have budgeted for, had we know the actual volume? VC CM FC FC Profit Change in Profit Profit © Imparano, Inc MMVII Variance Analysis Budget Actual Units Sales VC CM Units (Re)calculate the budget using actual volume @ budgeted (ie Std) costs FC Profit Sales VC CM FC Change in Profit Profit © Imparano, Inc MMVII © Imparano, Inc MMVII 8 © Imparano, Inc MMVII © Imparano, Inc MMVII Variance Analysis Actual Flexible Budget Static Budget Units Units Units Sales Sales Sales VC VC VC CM CM CM FC Profit FC Profit FC Profit © Imparano, Inc MMVII 9 © Imparano, Inc MMVII Variance Analysis Actual Flexible Budget Static Budget Units Units Units Sales Sales Sales VC VC VC CM CM CM FC FC Profit Profit © Imparano, Inc MMVII Variance Analysis Actual Flexible Budget Static Budget Units Units Units Sales Sales Sales VC VC VC CM CM CM FC Fixed Cost Spending Variance Profit Change in Profit FC Profit © Imparano, Inc MMVII 10 Fixed Cost Spending Variance = $37,000 Unfavorable © Imparano, Inc MMVII Variance Analysis Actual Units Units Sales Sales VC Static Budget Flexible Budget VC Units Sales Sales Volume Variance CM CM FC Fixed Cost Spending Variance Profit VC CM FC Change in Profit Profit © Imparano, Inc MMVII Sales Volume Variance = $69,000 Favorable © Imparano, Inc MMVII 11 Flexible Budget Static Budget Units Units Sales VC Sales Sales Volume Variance VC CM CM Sales Volume Variance = (Change in Vol*(Budgeted CM per unit) © Imparano, Inc MMVII Sales Volume Variance = $69,000 Favorable (7200-4500)80 + (4800-5500)210 = $69,000 Favorable © Imparano, Inc MMVII Variance Analysis Actual Static Budget Flexible Budget Units Units Sales Sales Units Sales Sales Volume Variance VC VC CM CM FC Fixed Cost Spending Variance Profit Change in Profit VC CM FC Profit © Imparano, Inc MMVII 12 Variance Analysis Static Budget Flexible Budget Actual Units Units Sales Sales VC Variable Cost Variances VC Units Sales Sales Volume Variance CM CM FC Fixed Cost Spending Variance Profit VC CM Change in Profit FC Profit © Imparano, Inc MMVII Variable Cost Flexible Budget Variances = $99,600 Unfavorable © Imparano, Inc MMVII Variance Analysis Static Budget Flexible Budget Actual Units Units Sales Sales Price Variance Sales VC Variable Cost Variances VC Units Sales Sales Volume Variance CM CM FC Fixed Cost Spending Variance Profit Change in Profit VC CM FC Profit © Imparano, Inc MMVII 13 Sales Price Variance = $300,000 Unfavorable (7200)(325 – 300) + (4800)(700 - 800) = $300,000 Unfavorable © Imparano, Inc MMVII Variance Analysis Sales Volume Variance + Sales Price Variance + Variable Cost Variances + Fixed Cost Spending Variance = Total Variance © Imparano, Inc MMVII FFL – Summary of Level 0 and 1 Variances Sales Volume Sales Price Variable Cost Fixed Cost Spending Total $ 69,000) (300,000) (99,600) (37,000) $ (367,600) © Imparano, Inc MMVII 14 Variance Variance Analysis Analysis Sales Volume Variance + Sales Price Variance + Variable Cost Variances + Fixed Cost Spending Variance = Total Variance © V irtua l Corpor ation, 2 0 00 Next step: Separate variable cost and sales volume variances in components. © Imparano, Inc MMVII Variable Cost Variances Flexible Budget Actual Materials Labor Variable O/H Materials variances Labor variances Variable O/H variances Materials Labor Variable O/H © Imparano, Inc MMVII Now: price & efficiency Flexible Budget Actual Materials Labor Variable O/H Price Usage Rate Efficiency Rate Efficiency Materials Labor Variable O/H © Imparano, Inc MMVII 15 Variance Sales Volume Variance + Sales Price Variance Analysis + Variable Cost Variances + Materials Variance +Materials Price +Materials Usage +Labor Variance +Labor Rate +Labor Efficiency +Variable O/H Variance +Variable OH Rate +Variable OH Efficiency + Fixed Cost Spending Variance = Total Variance © Imparano, Inc MMVII Example: Now: Now: price price & & efficiency efficiency Flexible Budget Actual Materials Labour Variable O/H Price Usage Rate Efficiency Rate Efficiency Materials Labour Variable O/H © V i rtual Corpo r atio n, 2 000 Labor (master) budget: Output units: Hours per unit: Total hours: Cost per hour: Total Labor cost Standard cost/unit 1,000 2.0 2,000 $20.00 $40,000 $40.00 © Imparano, Inc MMVII Example: Now: Now: price price & & efficiency efficiency Flexible Budget Actual Materials Labour Variable O/H Price Usage Rate Efficiency Rate Efficiency Materials Labour Variable O/H © V i rtual Corpo r atio n, 2 000 Labor actual: Output units: Hours per unit: Total hours: Cost per hour: 1,100 2.1 2,310 $22.00 Total Labor cost $50,820 Actual cost/unit $46.20 © Imparano, Inc MMVII 16 Example: Static Output units: Actual Budget 1,100 1,000 Hours per unit: 2.1 2.0 Cost per hour: $22.00 $20.00 Total Labor cost $50,820 $40,000 Total Variance $10,820 U Variance as a result of: Change in volume Change in inputs (efficiency) Change in cost/input unit (price) © Imparano, Inc MMVII Example: Output units: Flexible Static Actual Hybrid Budget Budget 1,000 1,100 1,100 1,100 Hours per unit: 2.1 2.1 2.0 2.0 Cost per hour: $22.00 $20.00 $20.00 $20.00 $50,820 $46,200 $44,000 Total Labor cost Flex bud Var $6,820 U $40,000 Cost p portion of Vol Var $4,000U Total Variance $10,820 U © Imparano, Inc MMVII Example: Flexible Output units: Actual Hybrid 1,100 1,100 Budget 1,100 Hours per unit: 2.1 2.1 2.0 Cost per hour: $22.00 $20.00 $20.00 $50,820 $46,200 $44,000 Total Labor cost Price/Rate Var $4,620 U Effic Var $2,200 U Flex bud Var $6,820 U © Imparano, Inc MMVII 17 Example: Flexible Actual Hybrid Budget 1,100 1,100 1,100 Hours per unit: 2.1 2.1 2.0 Cost per hour: $22.00 $20.00 $20.00 $50,820 $46,200 $44,000 Output units: Total Labor cost (22-20)*(1100*2.1) Price/Rate Var $4,620 U (2.1-2.0)*1100*20 Effic Var $2,200 U Flex bud Var $6,820 U © Imparano, Inc MMVII Sales Volume Variance + Sales Price Variance If there are multiple grades of input: the next step is to break efficiency into yield and mix + Variable Cost Variances + Materials Variance +Materials Price +Materials Usage +Labor Variance +Labor Rate +Labor Efficiency +Variable O/H Variance +Variable OH Rate +Variable OH Efficiency + Fixed Cost Spending Variance See ACCT 422 = Total Variance © Imparano, Inc MMVII Variance Analysis: Misc. Items • Purchase / usage difference • Absorption costing adds the denominator variance © Imparano, Inc MMVII 18 Example: Flexible Actual Hybrid Hybrid Budget Kg purchased/used 3,500 3,500 4,000 3,800 Cost per kg: $2.00 $2.50 2.5 $2.50 $7,000 $8,750 $10,000 $9,500 Total cost PriceVar Usage Var Amount Purchased Amount Used A/S © Imparano, Inc MMVII Denominator Variance: F O/H Spending Variance Burden Rate = Budgeted Annual O/H Annual Volume Production Volume (Denominator) Variance © Imparano, Inc MMVII Variance Analysis Finished! © Imparano, Inc MMVII 19
