Flexible Budgets and Standard Costs. Chapter 23. Budgets and Variances. Budget variance—the difference between an actual amount and a budgeted figure Managers use variances to operate a business Important to know why actual amounts differ from the budget
Per Unit Sale Price Actual $12.10 Budget $12Per Unit VC Actual $8.60 Budget $ 8
Moje, Inc., manufactures travel locks. The budgeted selling price is $19 per lock, the variable cost is $8 per lock, and budgeted fixed costs are $15,000.
1. Prepare a flexible budget for output levels of 4,000 locks and 7,000 locks for the month ended April 30, 2012.
Purchase price, net of discounts $1.90 per square footDelivery, receiving, and inspection 0.10 per square footTotal standard cost per square foot of vinyl $2.00 per square foot
Hourly wage $ 8.00 per direct labor hourPayroll taxes and fringe benefits 2.50 per direct labor hourTotal standard cost per direct labor hour $10.50 per direct labor hour
= = $2.00 per DL hour
= = $3.00 per DL hour
How well material and labor prices are kept within standards
How well a company uses its materials or human resources
The Relationships Among Price, Efficiency, Flexible Budget, Sales Volume, and Static Budget Variances
Johnson, Inc., is a manufacturer of lead crystal glasses. The standard materials quantity is 0.8 pound per glass at a price of $0.30 per pound. The actual results for the production of 6,900 glasses was 1.1 pounds per glass, at a price of $0.40 per pound.
Materials Price Variance = (AP – SP) x AQ
= ($0.30 per pound – $0.40 per pound) x 6,900 glasses x 1.1 lb
= (– $0.10 per pound) x 7,590 pounds
= – $759 unfavorable
Direct Materials Efficiency Variance = (AQ – SQ) x SP
= (7,590 – 5,520) x $0.30 per pound
= (2,070) x $0.30 per pound
= $621 unfavorable
Johnson, Inc., manufactures lead crystal glasses. The standard direct labor time is 0.3 hour per glass, at a price of $13 per hour. The actual results for the production of 6,900 glasses were 0.2 hour per glass, at a price of $10 per hour.
Direct Labor Price Variance = (AP – SP) x AH
= ($10.00 – $13.00) x 1,380 hours
= ($3.00) x 1,380 hours
= $4,140 favorable
Direct Labor Efficiency Variance = (AH – SH) x SP
= (1,380 hours – 2,070 hours) x $13.00 per hour
= (690 hours) x $13.00 per hour
= $8,970 favorable
Allocating Overhead in a Standard Cost System
Refer to the data from Johnson, Inc., in S23-6 and S23-7. The following information relates to the company’s overhead costs:
Static budget variable overhead $ 9,000
Static budget fixed overhead $ 4,500
Static budget direct labor hours 1,800 hours
Static budget number of glasses 6,000
Johnson allocates manufacturing overhead to production based on standard direct labor hours. Last month, Johnson reported the following actual results: actual variable overhead, $10,200; actual fixed overhead, $2,830.
Budgeted overhead cost
Budgeted direct labor hours
Standard overhead rate =
Standard variable = $9,000 / 1,800 hours = $5 per DL hour
Standard fixed = $4,500 / 1,800 hours = $2.50 per DL hour