Quản trị Kinh doanh - Chapter 23: Flexible budgetsand standard costs

Chapter 23Flexible Budgetsand Standard CostsPowerPoint Editor: Anna BoulwareCopyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.1Budgetary Control and Reporting Reviseobjectivesand preparea newbudget.Management usesbudgets to monitorand controloperations. Develop the budgetfrom planned objectives. Compareactual to budget andanalyze anydifferences. Take corrective andstrategic actions.2Budgets are an important cost control tool. Actual results are compared with budgets and differences are investigated and analyzed. U = Unfavorable varianceActual cost is greaterthan budgeted cost. F = Favorable varianceActual revenue and income are greater than budgeted revenue and income.If unit sales are higher, should we expect costs to be higher? How much of the higher costs are because of higher unit sales?Fixed Budget Performance Report3A fixed budget, also called a static budget, is based on a singlepredicted amount of sales or other activity measure.Improve performance evaluation.May be prepared for any activity level in the relevant range.Show revenues and expensesthat should have occurred at theactual level of activity. Reveal variances due to good costcontrol or lack of cost control.Purpose of Flexible Budgets4 23-P1: Preparation of Flexible Budgets5Preparation of Flexible Budgets To a budget for different activity levels, we must know how costs behave with changes in activity levels.Total variable costs changein direct proportion to changes in activity.Total fixed costs remainunchanged within therelevant range. FixedVariableP 16Variable costs are a constant amount per unit.Total variable cost = $4.80 per unit × budget level in unitsTotal Fixed costs do not change within the relevant range. Preparation of Flexible Budgets7P 1Favorable sales variance indicates that the averageselling price was greater than $10.00 per unit.Unfavorable cost variances indicate costs are greater than expected for 12,000 units.Favorable variance because favorable sales variance is greater than unfavorable cost variances.Flexible Budget Performance Report8P 1A flexible budget performance report compares actual performance and budgeted performance based on actual sales. In Optel’s case, January’s sales are 12,000 units.NEED-TO-KNOW 23.1A manufacturing company reports the fixed budget and actual results for the year as shown below. Thecompany’s fixed budget assumes a selling price of $40 per unit. The fixed budget is based on 20,000 unitsof sales, and the actual results are based on 24,000 units of sales. Prepare a flexible budget performancereport for the year.Budget assumptions:Selling price per unit$40.00($800,000 divided by 20,000 units)Variable cost per unit$8.00($160,000 divided by 20,000 units)Budget AssumptionsFlexible Budget(24,000 units)Sales$40.00 x 24,000 units =$960,000Variable costs$8.00 x 24,000 units = 192,000Fixed costs500,000Fixed BudgetActual Results(20,000 units)(24,000 units)Sales$800,000$972,000Variable costs160,000240,000Fixed costs500,000490,0009P 1NEED-TO-KNOW 23.1A manufacturing company reports the fixed budget and actual results for the year as shown below. Thecompany’s fixed budget assumes a selling price of $40 per unit. The fixed budget is based on 20,000 unitsof sales, and the actual results are based on 24,000 units of sales. Prepare a flexible budget performancereport for the year.Budget AssumptionsFlexible Budget(24,000 units)Sales$40.00 x 24,000 units =$960,000Variable costs$8.00 x 24,000 units = 192,000Fixed costs500,000Flexible BudgetActual Results(24,000 units)(24,000 units)VariancesSales$960,000$972,000$12,000Favorable (F)Variable costs192,000240,00048,000Unfavorable (U)Contribution margin768,000732,00036,000Unfavorable (U)Fixed costs500,000490,00010,000Favorable (F)Net income268,000242,00026,000Unfavorable (U)FLEXIBLE BUDGET PERFORMANCE REPORTFixed BudgetActual Results(20,000 units)(24,000 units)Sales$800,000$972,000Variable costs160,000240,000Fixed costs500,000490,00010P 1 23-C1: Standard Costs11Benchmarks for measuring performance.The expected level of performance.Based on carefullypredetermined amounts.Used for planning materials, labor, and overhead requirements.Standard costs are Standard Costs12C 1Standard costs can be used in a flexible budgeting system to enable management to better understand the reasons for variancesIdentifying Standard CostsEngineerProductionManagerManagerialAccountantHumanResourcesManager13C 1Managerial accountants, engineers, personnel administrators, and other managers combine their efforts to set standard costs.Practical standards should be set at levels that are currently attainable with reasonable and efficient effort.Ideal standards, that are based on perfection, areunattainable and discouraging to most employees.Setting Standard CostsQuantityStandardsPriceStandardsDirect MaterialsTimeStandardsRateStandardsDirectLaborActivityStandardsRateStandardsVariableOverhead14C 1Setting Standard Costs15C 1The standard costs of direct materials, direct labor, and overhead for one bat, manufactured by ProBat, are shown below. This is called a standard cost card. These standard cost amounts are then used to prepare manufacturing budgets for a budgeted level of production. 23-C2: Cost Variance Analysis16A standard cost varianceis the amount by whichan actual cost differs fromthe standard cost.Cost VariancesManufacturingOverheadDirectMaterialsDirectLaborStandard costType of Product Cost$ AmountThis variance isfavorable (F) becausethe actual costis less than thestandard cost. This variance is unfavorable (U) because the actual cost exceeds the standard cost. 17C 2Cost Variance AnalysisVariance analysis involves preparing a standard cost performance report and comparing actual costs with standard costs.  We then investigate variances by asking for explanations and possible causes for the variances. We should correct problems that caused unfavorable variances and possibly adopt and reward the practices that resulted in favorable variances. 18C 2Cost Variance Computation19C 2Management needs information about the factors causing a cost variance, but first it must properly compute the variance. In its most simple form, a cost variance (CV) is computed as:Cost Variance (CV) = Actual Cost (AC) - Standard Cost (SC)Actual Cost (AC) = Actual Quantity (AQ) x Actual Price (AP)Standard Cost (SC) = Standard Quantity (SQ) x Standard Price (SP)Actual quantity (AQ) is the input (material or labor) used to manufacture the quantity of output. Standard quantity (SQ) is the standard input for the quantity of output.where:Actual price (AP) is the actual amount paid to acquire the input (material or labor).Standard price (SP) is the standard price.Cost Variance ComputationCost VarianceQuantity VariancePrice VarianceThe difference betweenthe actual price and thestandard price.The difference betweenthe actual quantity andthe standard quantity.20C 2Two main factors cause a cost variance:To assess the impacts of these two factors in a cost variance, let’s look at the model on the next slide.Actual Quantity Actual Quantity Standard Quantity × × ×  Actual Price Standard Price Standard PricePrice VarianceQuantity VarianceCost Variance ComputationStandard quantity is the quantity that should have been used for the actual good output. Standard price is the amount that should have been paid for the resources acquired.21C 2 (AP - SP) x AQ (AQ - SQ) x SP AQ = Actual Quantity SP = Standard Price AP = Actual Price SQ = Standard Quantity Actual Quantity Actual Quantity Standard Quantity × × ×  Actual Price Standard Price Standard PricePrice VarianceQuantity VarianceCost Variance Computation22C 2Actual CostStandard Cost 23-P2: Computing Materials and Labor Variances23G-Max Company makes golf club heads withthe following standard cost information:Computing Materialsand Labor Variances24P 2During May, G-Max produced 3,500 club heads using1,800 pounds of material. G-Max paid $21.00 perpound for the material.Compute the material price and quantity variances.Materials Cost Variances25P 2Use this information to compute the material price and quantity variances before you go to the next slide. Actual Quantity Actual Quantity Standard Quantity × × ×  Actual Price Standard Price Standard Price 1,800 lbs. 1,800 lbs. 1,750 lbs. × × × $21.00 per lb. $20.00 per lb. $20.00 per lb. $37,800 $36,000 $35,000 SQ = 3,500 units × 0.5 lb. per unit = 1,750 lbs.Price Variance$1,800 UnfavorableQuantity Variance$1,000 UnfavorableMaterials Cost Variances26P 2Actual CostStandard Cost$2,800 Total Cost Variance (U)+I am not responsible for this unfavorable materialquantity variance. You purchased cheapmaterial, so my peoplehad to use more of it.You used too much material because of poorly trained workers and poorly maintained equipment.Also, your poor scheduling requires me to rush order material at a higher price, causing unfavorable price variances. Materials Cost Variances27P 2Who is responsible for material cost variances??NEED-TO-KNOW 23.2A manufacturing company reports the following for one of its products. Compute the direct materials(a) price variance and (b) quantity variance and indicate whether they are favorable or unfavorable.Direct materials standard8 pounds @ $6.00 per poundActual direct materials used83,000 pounds @ $5.80 per poundActual finished units produced10,000AQ83,000lbs.AP$5.80per lb.SQ80,000lbs.(10,000 units x 8 lbs. per unit)SP$6.00per lb.Materials Price VarianceMaterials Quantity Variance$1,400 UnfavorableTotal Direct Materials Variance$481,400$498,000$480,000$18,000 Unfavorable$16,600 FavorableAQ X APStandard CostSQ x SPAQ x SP83,000 x $5.8083,000 x $6.00[10,000 x 8] x $6.00Actual Cost28P 2 Actual Hours Actual Hours Standard Hours × × ×  Actual Rate Standard Rate Standard Rate*Rate Variance*Efficiency Variance AH(AR - SR) SR(AH - SH) AH = Actual Hours SR = Standard Rate AR = Actual Rate SH = Standard Hours Labor Cost Variances29P 2Actual CostStandard CostInstead of price and quantity, for direct labor we use the terms rate and hours.*NEWDuring May, G-Max produced 3,500 club heads working3,400 hours. G-Max paid an average of $8.30 perhour for the hours worked.Compute the labor rate and efficiency variances.Labor Cost Variances30P 2Use this information to compute the labor rate and efficiency variances before you go to the next slide. Actual Hours Actual Hours Standard Hours × × ×  Actual Rate Standard Rate Standard Rate 3,400 hours. 3,400 hours 3,500 hours × × × $8.30 per hour. $8.00 per hour. $8.00 per hour. $28,220 $27,200 $28,000 SQ = 3,500 units × 1.0 hour per unit = 3,500 hours.Rate Variance$1,020 UnfavorableEfficiency Variance$800 FavorableLabor Cost Variances31P 2Actual CostStandard Cost$220 Total Cost Variance (U)+High skill,high rateLow skill,low rateUsing highly paid skilled workers toperform unskilled tasks results in an unfavorable rate variance.Labor Cost Variances32P 2Evaluating Labor Cost VariancesOne possible explanation of G-Max’s labor rate and efficiency variances is the use of workers with different skill levels.However, fewer labor hours might be required for the work resulting in a favorable efficiency variance.I am not responsible for the unfavorable labor efficiency variance. You purchased cheap material, so it took more time to process it. You used too much time because of poorly trained workers and poor supervision.Labor Cost Variances33P 2Who is responsible for material cost variances??Production managers who make work assignmentsare generally responsible for labor cost variances.NEED-TO-KNOW 23.3Compute the direct labor rate and efficiency variances.SQ(2,500 units x 2 hrs. per unit = 5,000 standard hrs. )$16,875 UnfavorableTotal Direct Labor Variance$625 Unfavorable$16,250 UnfavorableLabor Rate VarianceLabor Efficiency Variance6,250 x $13.106,250 x $13.00(2,500 x 2) x $13.00$81,875$81,250$65,000Actual CostStandard CostAQ X ARAQ x SRSQ x SRThe following information is available for York Company.Actual direct labor cost (6,250 hours @$13.10 per hour) $81,875Standard direct labor hours per unit2.0 hoursStandard rate per hour$13.00Actual production (units)2,500Budgeted production (units)3,00034P 2 23-P3: Computing Overhead Cost Variances35 Recall that overhead costs are assigned to products and services using a predetermined overhead rate (POHR):Estimated total overhead costsEstimated activity POHR =Assigned Overhead = POHR × Standard ActivityOverhead Standardsand Variances36P 3Standard Overhead RateContains a variableunit rate which staysconstant at all levelsof activity.Contains a fixedoverhead rate whichdeclines as activitylevel increases.Function of activity levelchosen to determine rate.Setting Overhead StandardsFlexible budgets, showing budgeted amount of overhead for various levels of activity, are used to analyze overhead costs.37P 3Standard overhead costs are the overhead amounts expected to occur at a certain activity level. To allocate overhead costs to products or services, management needs to establish the standard overhead cost rate.Standard overhead rate is: $8,000 ÷ 4,000 DL hours = $2.00 per DL hourFlexible Overhead BudgetsG-Max predicted an 80 percent activity level.38P 3(Flexible budgets for overhead prepared at several levels of activity)This standard overhead rate will be used in computing overhead cost variances.Computing Overhead Cost VariancesOverhead costvariance(OCV)Actual overheadincurred(AOI)Standard overheadapplied(SOA)=–Ex: During May, G-Max produced 3,500 club heads working 3,400 hours. G-Max budgeted for 4,000 units (80%).Actual variable overhead was $3,650 and actual fixed overhead was $4,000.39P 3When standard costs are used, a company applies overhead to the units produced using the predetermined standard overhead rate. The difference between the total overhead cost applied to products and the total overhead cost actually incurred is called an overhead cost variance. It’s defined as:Total Overhead Cost Variance$3,650 + $4,0003,500 DLH × $2.00 per DLH=–(OCV)40P 3Overhead costvariance(OCV)Actual overheadincurred(AOI)Standard overheadapplied(SOA)=–Ex: During May, G-Max produced 3,500 club heads working 3,400 hours. G-Max budgeted for 4,000 units (80%).Actual variable overhead was $3,650 and actual fixed overhead was $4,000.$7,650$7,000=–(OCV)To help identify factors causing the overhead cost variance, let’s analyze this variance separately for controllable and volume variances. =(unfavorable ) $650(OCV)Controllable and Volume Variances41P 3Overhead costvariance(OCV)Actual overheadincurred(AOI)Standard overheadapplied(SOA)=–Controllable and Volume Variances for G-Max42P 3Overhead Controllable VarianceOverhead Volume VarianceNEED-TO-KNOW 23.4A manufacturing company uses standard costs and reports the information below for January. The companyuses machine hours to allocate overhead, and the standard is two machine hours per finished unit.Predicted activity level 1,500 unitsVariable overhead rate $2.50 per machine hourFixed overhead budgeted$6,000 per month ($2.00 per machine hour at predicted activity level)Actual activity level1,800 unitsActual overhead costs $15,800Compute the total overhead cost variance, overhead controllable variance, and overhead volume variancefor January. Indicate whether each variance is favorable or unfavorable.SQ3,600MHs(1,800 units x 2 MHs per unit = 3,600 standard hrs. )SR$4.50per MH(FOH $2.00 + VOH $2.50 = $4.50 per MH)$400 FavorableTotal Overhead VarianceFlexible Budget1,800 unitsVOH [(1,800 x 2) x $2.50] + FOH $6,000$800 Unfavorable$1,200 FavorableControllable VarianceOverhead Volume Variance(1,800 x 2) x $4.50$15,800$15,000$16,200Actual OverheadStandard CostSQ x SR43P 3Global ViewBMW, uses standard costing and variance analysis concepts. Material must meet high quality standards, and the company sets quantity standards for each of its machine operations. BMW also sets standards for how much labor time should be used in the assembly of its automobiles and then  monitors its employee performance.44 23-A1: Sales Variances45A similar analysis can be applied to sales variances. We will use two additional G-Max products, Excel golf balls and Big Bert drivers, to illustrate.Sales Variances46A 1Consider the following sales data from G-Max:47A 1Computing Sales Variances for G-Max 23A-P4 (Appendix): Expanded Overhead Variances and Standard Cost Accounting System48Appendix 23A: Expanded OverheadVariances and Standard Cost Accounting system49P 4AH = Actual Hours of ActivityAVR = Actual Variable Overhead RateSVR = Standard Variable Overhead RateSH = Standard Hours AllowedSpending VarianceEfficiencyVariance AH × SVR AH × AVR SH × SVR Actual Flexible Budget Applied Variable for Variable Variable Overhead Overhead at Overhead at  Incurred Actual Hours Standard Hours Variable Overhead Variances for G-Max50P 4Let’s split the $150 unfavorable variance into spending and efficiency variances. . .During May, G-Max produced 3,500 club heads working3,400 hours. G-Max budgeted for 4,000 units (80%).Actual variable overhead was $3,650 andactual fixed overhead was $4,000.Compute the variable overhead spending andefficiency variancesRecall the G-Max information for May:Variable Overhead Variances for G-Max51P 4Variable Overhead Variances for G-Max523,400 hrs. x $1.00AH × AVR 3,500 hrs. x $1.00 Actual Flexible Budget Applied Variable for Variable Variable Overhead Overhead at Overhead at  Incurred Actual Hours Standard Hours Spending Variance$250 UnfavorableEfficiency Variance$100 Favorable$3,650$3,400$3,500P4Spending VarianceVolumeVariance AH × SVR AH × AVR SH × SFR Actual Budgeted Applied Fixed Fixed Fixed Overhead Overhead Overhead at  (Given) (Flexible Budget) Standard Hours Fixed Overhead Variances for G-Max53P 4Let’s split the $500 unfavorable variance into spending and volume variances. . .SFR = Standard Fixed Overhead RateSH = Standard Hours AllowedDuring May, G-Max produced 3,500 club heads working3,400 hours. G-Max budgeted for 4,000 units (80%).Actual variable overhead was $3,650 andactual fixed overhead was $4,000.Compute the fixed overheadspending and volume variances.Recall the G-Max information for May:Fixed Overhead Variance for G-Max54P 4 AH × SVR AH × AVR 3,500 hrs × $1.00 Actual Budgeted Applied Fixed Fixed Fixed Overhead Overhead Overhead at  (Given) (Flexible Budget) Standard Hours Fixed Overhead Variances for G-Max55P 4Spending Variance$0Volume Variance$500 Unfavorable$4,000$4,000$3,500VolumeFixed overheadapplied to products4,000 ExpectedUnits3,500ActualUnits$4,000 expected fixed OH$3,500 applied fixed OH{$500Volume VarianceUnfavorable3,500 units × $1.00 fixed overhead rateCostFixed Overhead Cost Variances56P 4Spending VarianceEfficiency VarianceResults from paying moreor less than expected foroverhead items and from excessive usage ofoverhead items.A function of the selected cost driver. Itdoes not reflect overhead control. Variable OverheadSpending VarianceVolume VarianceResults from paying moreor less than expected forfixed overhead items.Results from the inabilityto operate at the activitylevel planned for the period.It has no significance for cost control.Fixed OverheadVariable and Fixed Overhead Variances57P 4 23A-P5 (Appendix): Standard Cost Journal Entries58Standard Cost Accounting SystemRecording G-Max material costs for May* Many companies record the materials price variance when materials are purchased. For simplicity, we record both the materials price and quantity variances when  materials are issued to production.59P 5Standard cost systems also record costs and variances in accounts. The entries in the next few slides briefly illustrate the important aspects of this process for G-Max’s standard costs and variances for May.Standard Cost Accounting S