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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.

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Accounting fundamentals for managers

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


Accounting fundamentals for managers

Task Force Clip Art included in this electronic presentation is used with the permission of New Vision Technology of Nepean Ontario, Canada.


Chapter 13

Chapter 13

Budgeting and Standard Cost Systems


Learning objectives

Learning Objectives

After studying this chapter, you should be able to:

  • Describe the nature and objectives of budgeting.

  • Describe the master budget for a manufacturing business.

  • Describe the nature and use of standards.

  • Explain and illustrate how standards are used in budgeting.

Continued


Learning objectives1

Learning Objectives

  • Calculate and interpret the basic variances for direct materials and direct labor.

  • Explain how standards can be used for nonmanufacturing expenses.

  • Explain and provide examples of nonfinancial performance measures.


Learning objective

Learning Objective

1

Describe the nature and objectives of budgeting.


Accounting fundamentals for managers

Nature and Objectives of Budgeting

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

Human Behavior and Budgeting


Accounting fundamentals for managers

Static Budgets

Description:

A budget that does not reflect potential changes in volume or activity level

Simple—all 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

Strength:

Weakness:

Typical Usage:


Accounting fundamentals for managers

Flexible Budgets

Description:

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 costs—must differentiate fixed and variable costs

Operational departments of retailers and manufacturers whose costs change with sales and production

Strength:

Weakness:

Typical Usage:


Accounting fundamentals for managers

Flexible Budgeting

Colter Manufacturing Company

Assembly Department Budget

For the Month Ending July 31, 2003

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

Units of production8,0009,00010,000

Cost per unit is $5.50 at all levels of activity


Accounting fundamentals for managers

Flexible Budgeting

Colter Manufacturing Company

Assembly Department Budget

For the Month Ending July 31, 2003

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

Units of production8,0009,00010,000


Accounting fundamentals for managers

Flexible Budgeting

Colter Manufacturing Company

Assembly Department Budget

For the Month Ending July 31, 2003

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

Units of production8,0009,00010,000


Learning objective1

Learning Objective

2

Describe the master budget for a manufacturing business.


Accounting fundamentals for managers

Income Statement Budgets

Sales

Budget


Accounting fundamentals for managers

Income Statement Budgets

Sales

Budget

Production Budget

Expected units of sales

+Desired units in ending inventory

-Estimated units in beginning inventory

Total units to be produced


Accounting fundamentals for managers

Income Statement Budgets

Sales

Budget

Production Budget

Materials needed for production

+Desired ending materials inventory

-Estimated beginning materials inventory

Direct materials to be purchased

Direct Materials

Purchases Budget


Accounting fundamentals for managers

Income Statement Budgets

Sales

Budget

Production Budget

Direct Materials

Purchases Budget

Direct Labor

Cost Budget


Accounting fundamentals for managers

Income Statement Budgets

Sales

Budget

Production Budget

Direct Materials

Purchases Budget

Direct Labor

Cost Budget

Factory Overhead

Cost Budget


Accounting fundamentals for managers

Income Statement Budgets

Sales

Budget

Production Budget

Direct Materials

Purchases Budget

Cost of Goods

Sold Budget

Direct Labor

Cost Budget

Factory Overhead

Cost Budget


Accounting fundamentals for managers

Income Statement Budgets

Sales

Budget

Production Budget

Direct Materials

Purchases Budget

Cost of Goods

Sold Budget

Direct Labor

Cost Budget

Selling & Administrative

Expenses

Budget

Factory Overhead

Cost Budget


Accounting fundamentals for managers

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

How are these numbers determined?


Accounting fundamentals for managers

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


Accounting fundamentals for managers

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


Accounting fundamentals for managers

Elite Accessories Inc.

Production Budget

For the Year Ending December 31, 2004

Units

WalletHandbag

Sales528,000280,000

From sales budget


Accounting fundamentals for managers

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


Accounting fundamentals for managers

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


Accounting fundamentals for managers

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

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.


Accounting fundamentals for managers

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.


Accounting fundamentals for managers

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.


Accounting fundamentals for managers

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.


Accounting fundamentals for managers

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

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.


Accounting fundamentals for managers

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.


Accounting fundamentals for managers

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.


Accounting fundamentals for managers

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


Accounting fundamentals for managers

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


Accounting fundamentals for managers

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


Accounting fundamentals for managers

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


Accounting fundamentals for managers

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


Accounting fundamentals for managers

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


Accounting fundamentals for managers

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


Accounting fundamentals for managers

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


Accounting fundamentals for managers

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


Accounting fundamentals for managers

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


Accounting fundamentals for managers

Elite Accessories Inc.

Cash Budget

For the Three Months Ending March 31, 2004

JanuaryFebruaryMarch

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


Accounting fundamentals for managers

Elite Accessories Inc.

Cash Budget

For the Three Months Ending March 31, 2004

JanuaryFebruaryMarch

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 additions—274,000—

Interest expense22,500 — —

Income taxes — —150,000

Total cash payments$984,500$1,210,000$1,075,000


Accounting fundamentals for managers

Elite Accessories Inc.

Cash Budget

For the Three Months Ending March 31, 2004

JanuaryFebruaryMarch

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 additions—274,000—

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


Accounting fundamentals for managers

Elite Accessories Inc.

Cash Budget

For the Three Months Ending March 31, 2004

JanuaryFebruaryMarch

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 additions—274,000—

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


Accounting fundamentals for managers

Elite Accessories Inc.

Cash Budget

For the Three Months Ending March 31, 2004

JanuaryFebruaryMarch

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 additions—274,000—

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


Learning objective2

Learning Objective

3

Describe the nature and use of standards.


Accounting fundamentals for managers

Standards — Performance Benchmarks

Setting Standards

Requires joint effortsof 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


Learning objective3

Learning Objective

4

Explain and illustrate how standards are used in budgeting.


Accounting fundamentals for managers

$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

Western Rider Inc.

Standard Cost per Pair of XL Jeans

Direct Materials:

Direct Labor:

Factory Overhead:


Accounting fundamentals for managers

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

Western Rider Inc.

Budget Performance Report

For the Month Ended June 30, 2004

ActualFlexibleCost

Manufacturing CostsCostsBudgetVariance


Learning objective4

Learning Objective

5

Calculate and interpret the basic variances for direct materials and direct labor.


Accounting fundamentals for managers

Direct Materials Variance Report

For the Month Ended June 30, 2004

DescriptionStandardActualVariance

Square yards per unit 1.50

Total units producedx 5,000

Total yards7,500

Price per yardx $5.00

Total dollars$37,500

The standard is based on the actual units produced.


Accounting fundamentals for managers

Direct Materials Variance Report

For the Month Ended June 30, 2004

DescriptionStandardActualVariance

Square yards per unit1.50

Total units producedx 5,000

Total yards7,500

Price per yardx $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


Accounting fundamentals for managers

Direct Materials Variance Report

For the Month Ended June 30, 2004

DescriptionStandardActualVariance

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)

Actual results are:

200 yards under standard

$.50 per yard over standard

$2,650 over standard


Accounting fundamentals for managers

Direct Materials Variance Report

For the Month Ended June 30, 2004

DescriptionStandardActualVariance

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)

$5.50

Actual cost.

$40,150

The total of this box is: $5.50 x 7,300 yards

price

quantity

7,300


Accounting fundamentals for managers

Direct Materials Variance Report

For the Month Ended June 30, 2004

DescriptionStandardActualVariance

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)

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


Accounting fundamentals for managers

Direct Materials Variance Report

For the Month Ended June 30, 2004

DescriptionStandardActualVariance

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)

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


Accounting fundamentals for managers

Direct Materials Variance Report

For the Month Ended June 30, 2004

DescriptionStandardActualVariance

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)

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


Accounting fundamentals for managers

Direct Labor Variance Report

For the Month Ended June 30, 2004

DescriptionStandardActualVariance

Hours per unit.80

Total units producedx 5,000

Total hours4,000

Rate per hourx $9.00

Total dollars $36,000

The standard is based on the actual units produced.


Accounting fundamentals for managers

Direct Labor Variance Report

For the Month Ended June 30, 2004

DescriptionStandardActualVariance

Hours per unit.80

Total units producedx 5,000

Total hours4,000

Rate per hourx $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


Accounting fundamentals for managers

Direct Labor Variance Report

For the Month Ended June 30, 2004

DescriptionStandardActualVariance

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

Actual results are:

150 hours under standard

$1.00 per hour over standard

$2,500 over standard


Accounting fundamentals for managers

Direct Labor Variance Report

For the Month Ended June 30, 2004

DescriptionStandardActualVariance

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

$10.00

Actual cost.

$38,500

The total of this box is: $10.00 x 3,850 hours

rates

hours

3,850


Accounting fundamentals for managers

Direct Labor Variance Report

For the Month Ended June 30, 2004

DescriptionStandardActualVariance

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)

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


Accounting fundamentals for managers

Direct Labor Variance Report

For the Month Ended June 30, 2004

DescriptionStandardActualVariance

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)

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


Accounting fundamentals for managers

Direct Labor Variance Report

For the Month Ended June 30, 2004

DescriptionStandardActualVariance

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)

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


Learning objective5

Learning Objective

6

Explain how standards can be used for nonmanufacturing expenses.


Standards for nonmanufacturing expenses

Standards for Nonmanufacturing Expenses

Standard cost to process sales order

- Actual cost to process sales order

Variance


Learning objective6

Learning Objective

7

Explain and provide examples of nonfinancial performance measures.


Nonfinancial performance measures of a fast food restaurant

Nonfinancial Performance Measures of a Fast-Food Restaurant

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


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