© 2009 the mcgraw-hill companies, inc., all rights reserved f lexible b udgets and s tandard c osts...
TRANSCRIPT
© 2009 The McGraw-Hill Companies, Inc.,
All Rights Reserved
FLEXIBLE BUDGETS ANDSTANDARD COSTS
Chapter 24
McGraw-Hill/Irwin Slide 2McGraw-Hill/Irwin Slide 2
Management usesbudgets to monitor
and controloperations.
Develop the budgetfrom planned objectives.
Compareactual with budget andanalyze anydifferences.
Take corrective andstrategic actions.
Reviseobjectives
and preparea new
budget.
BUDGETARY CONTROL AND REPORTING
McGraw-Hill/Irwin Slide 3McGraw-Hill/Irwin Slide 3
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 BUDGETSA 1
McGraw-Hill/Irwin Slide 4McGraw-Hill/Irwin Slide 4
PREPARATION 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.
FixedVaria
ble
P 1
Let’s prepare
budgets for Optel.
McGraw-Hill/Irwin Slide 5McGraw-Hill/Irwin Slide 5
OptelFlexible Budgets
For the Month Ended January 31, 2009
Budget Budget BudgetVariable Total for for forAmount Fixed 10,000 12,000 14,000per Unit Cost Units Units Units
Sales: 10.00$ 100,000$ 120,000$ 140,000$ Total variable costs 4.80 48,000 57,600 67,200 Contribution margin 5.20$ 52,000$ 62,400$ 72,800$
Total fixed costs 40,000$ 40,000 40,000 40,000
Income from operations 12,000$ 22,400$ 32,800$
Exh. 21-3
P 1
Variable costs are a constant amount per unit.
Total variable cost = $4.80 per unit × budget level in units
Total Fixed costs do not change within the relevant range.
PREPARATION OF FLEXIBLE BUDGETS
McGraw-Hill/Irwin Slide 6McGraw-Hill/Irwin Slide 6
Benchmarks formeasuring performance.
The expected levelof performance.
Based on carefullypredetermined amounts.
Used for planning labor, materialand overhead requirements.Standard
Costs are
STANDARD COSTSC 1
McGraw-Hill/Irwin Slide 7McGraw-Hill/Irwin Slide 7
SETTING STANDARD COSTSC 1
QuantityStandards
PriceStandards
Direct Material
TimeStandards
RateStandards
DirectLabor
ActivityStandards
RateStandards
VariableOverhead
McGraw-Hill/Irwin Slide 8McGraw-Hill/Irwin Slide 8
Prepare standard cost performance
report
Conduct next period’s
operations
Analyze variances
Identifyquestions
Receive explanations
Takecorrective
actions
Begin
COST VARIANCE ANALYSISC 2
McGraw-Hill/Irwin Slide 9McGraw-Hill/Irwin Slide 9
Standard Cost Variances
COST VARIANCE COMPUTATIONS
Quantity VariancePrice Variance
The difference betweenthe actual price and the
standard price
The difference betweenthe actual quantity andthe standard quantity
C 2
McGraw-Hill/Irwin Slide 10McGraw-Hill/Irwin Slide 10
Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price
Price Variance Quantity Variance
COST VARIANCE COMPUTATIONSC 2
Standard 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.
McGraw-Hill/Irwin Slide 11McGraw-Hill/Irwin Slide 11
AQ(AP - SP) SP(AQ - SQ)
AQ = Actual Quantity SP = Standard Price AP = Actual Price SQ = Standard Quantity
Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price
Price Variance Quantity Variance
COST VARIANCE COMPUTATIONSC 2
McGraw-Hill/Irwin Slide 12McGraw-Hill/Irwin Slide 12
Actual Hours Actual Hours Standard Hours × × × Actual Rate Standard Rate Standard Rate
Rate Variance Efficiency Variance
Materials price variance Materials quantity variance Labor rate variance Labor efficiency variance Variable overhead Variable overhead spending variance efficiency variance
AH(AR - SR) SR(AH - SH)
AH = Actual Hours SR = Standard Rate AR = Actual Rate SH = Standard Hours
LABOR COST VARIANCESP 2
McGraw-Hill/Irwin Slide 13McGraw-Hill/Irwin Slide 13
Recall that overhead costs are assigned to products and services using a predetermined
overhead rate (POHR):
Estimated total overhead costs
Estimated activity POHR =
Assigned Overhead = POHR × Standard Activity
OVERHEAD STANDARDS AND VARIANCES
P 3
McGraw-Hill/Irwin Slide 14McGraw-Hill/Irwin Slide 14
Spending Variance
EfficiencyVariance
AH × SVR
AH × AVR
AH = Actual Hours of ActivityAVR = Actual Variable Overhead RateSVR = Standard Variable Overhead RateSH = Standard Hours Allowed
SH × SVR
Actual Flexible Budget Applied Variable for Variable Variable Overhead Overhead at Overhead at Incurred Actual Hours Standard Hours
COMPUTING VARIABLE OVERHEADCOST VARIANCES
P 3
McGraw-Hill/Irwin Slide 15McGraw-Hill/Irwin Slide 15
Spending Variance
VolumeVariance
SFR = Standard Fixed Overhead RateSH = Standard Hours Allowed
SH × SFR
Actual Fixed Fixed Fixed Overhead Overhead Overhead Incurred Budget Applied
COMPUTING FIXED OVERHEADCOST VARIANCES
P 3
McGraw-Hill/Irwin Slide 16McGraw-Hill/Irwin Slide 16
TotalOverheadVariance
VariableOverhead
FixedOverhead
EfficiencyVariance
SpendingVariance
VolumeVariance
SpendingVariance
ControllableVariance
P 3 COMPUTING CONTROLLABLE OVERHEAD VARIANCES AND VOLUME
VARIANCES
McGraw-Hill/Irwin Slide 17McGraw-Hill/Irwin Slide 17
END OF CHAPTER 24