Kế toán, kiểm toán - Chapter 10: Profit and cost center performance evaluation

1Profit and Cost Center Performance EvaluationCHAPTER 10© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. PowerPoint Presentation by LuAnn BeanProfessor of AccountingFlorida Institute of TechnologyManagerial Accounting 11E Maher/Stickney/Weil2CHAPTER GOALThis chapter describes and discusses variance analysis, including providing detailed comparisons of the profits achieved with those budgeted.☼☼3PROFIT VARIANCE ANALYSIS: DefinitionShows the causes of total profit variance.LO 24VARIANCESWhy do variances exist? A budget is an estimate. Variances help explain why actual outcomes do not match those projected.Variances are calculated for materials, labor, fixed and variable manufacturing overhead. Variances are divided between Price varianceEfficiency variance (Production volume variance for fixed manufacturing overhead)LO 35REASONS FOR VARIANCEA variance is the difference between a predetermined norm or standard and actual resultsStandards may be biasedSystematic reasonsChange in pricesMore/less efficient use of inputsLO 36Why is the standard variable cost used to compute the CM instead of actual cost?By using standard variable cost to compute the CM, we avoid mixing cost variances into calculating the effect of sales volume.LO 4MANAGERS WANT TO KNOW!7Who is charged with responsibility for sales volume, sales price and marketing cost variances?Top management assigns marketing managers with responsibility for these variances.LO 48ADMINISTRATIVE VARIANCESAdministrative variances are more difficult to manage because there is no well-defined causal relationship between administrative costs and production or sales output.LO 4MANAGERS WANT TO KNOW!9PRODUCTION COST VARIANCE ANALYSISVariances are calculated for major responsibility centers, holding all other things constant. After variances are computed, managers investigate the causes of these variances and take corrective action, if necessary.LO 510PRICE VARIANCE: DefinitionMeasures the difference between the price set as norm (standard) and the actual price.LO 611EFFICIENCY VARIANCE: DefinitionMeasures the difference between the actual quantity of inputs used and those allowed at standard to make a unit of output.LO 612EXHIBIT 10.4LO 6The general model shows how a total variance is divided between price and efficiency. 13REASONS FOR MATERIALS VARIANCESMaterials price variances occur because of Failure to take purchase discountsUsing a better (worse) grade of raw materials than expectedChanges in market supply/demand for raw material affecting pricesMaterials efficiency variances occur whenAllowance is not made for defects, inexperienced workersLO 614REASONS FOR DIRECT LABOR VARIANCESDirect labor price (wage) variances occur because of Changes in labor wage rates not incorporated into budgetDirect labor efficiency variances occur whenWorkers are poorly motivated and trainedPoor materialsFaulty equipmentPoor supervisionSchedulingLO 615OVERHEAD PRICE and EFFICIENCY VARIANCESVariable overhead price variance results when the cost per machine hour is more/less than the standard allowed. Variable overhead efficiency variance results if machine hours required to make the actual production output exceed the standard machine hours allowed to make that output.LO 616FIXED MANUFACTURING COST VARIANCESFixed manufacturing cost variances are applied at predetermined rates. Full absorption costing requires incorporating fixed costs into unit cost of items being manufactured.LO 717APPLIED FIXED MANUFACTURING COSTCost per unit:LO 7VGCApplied fixed manufacturing cost per unit Budgeted fixed manufacturing cost per periodEstimated production volume per period= $32,200 / 70,000 units= $0.46 per unit=Applied = $0.46 per unit X 80,000 units = $36,80018PRICE VARIANCE and PRODUCTION VOLUME VARIANCELO 7Price variance = Actual fixed manufacturing costs – Budgeted fixed manufacturing costs Production volume variance = Budgeted fixed manufacturing costs - Applied fixed manufacturing costs19Is variance analysis used with activity- based costing?YES! Variance analysis is computed on price and efficiency for each activity driver.LO 7MANAGERS WANT TO KNOW!20HIGH-TECHNOLOGY COMPANIESVariance analysis is applied differently in high technology companies because computerized equipment is substituted for direct labor. Therefore, these companies should treat labor as a fixed cost.LO 721Management should create a decision rulefor conducting a variance investigation.Investigations should be conducted on a cost-benefit basis. Quality should beallowed to vary within presettolerance limits.LO 7DECISION RULE22EXHIBIT 10.11LO 7Predetermined tolerance limits allow managers to identify conditions that should be investigated.23WORKER INVOLVEMENT: BenefitsCommitment improves and goals increase when workers have decision-making authority.When workers can make decisions, the company is closer to customers.Giving decision-making responsibility to workers uses their skills and knowledge and provides motivation to develop further.LO 824WORKER INVOLVEMENT: ChallengesManagement must create a system that conveys organization goals and critical success to all membersDetermining measures to determine success may not be as easy and must ensure Promoting desired behaviorComprehensive measuresSupporting organization goalsReflecting unit’s role in organizationPerformance measures most be applied consistently and accuratelyLO 825MIX VARIANCEMost organizations use multiple inputs to produce their output. For example, Massachusetts General Hospital uses a combination of registered nurses, licensed practical nurses, and nurse’s aides to provide nursing care to patients. Bethlehem Steel Company uses a combination of iron ore and other raw materials to make its product. A mix variance shows the impact on profits of using something other than the budgeted mix of inputs.LO 926COMPUTING THE MIX VARIANCELO 9Standard Price of the Inputs × ActualProportions of the Actual Total Quantity × Actual Total Quantity of InputsStandard Price of theInputs × StandardProportions of theActual Total Quantity× Actual TotalQuantity of Inputs-The general model for a mix variance is:27YIELD VARIANCEWe call the portion of the efficiency variance that is not a mix variance a yield variance. The yield variance measures the input-output relation holding the standard mix of inputs constant.LO 928End of CHAPTER 10