# topic 6 CA (2015)

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 Universidad Universidad Pompeu Fabra (UPF) Grado International Business Economics - 3º curso Asignatura Cost Accounting I Año del apunte 2015 Páginas 10 Fecha de subida 21/01/2016 Descargas 21 Puntuación media Subido por ssegues

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CA - ssegues TOPIC 6: STANDARD COSTING AND VARIANCE ANALYSIS OUTLINE - - Planning and control. Introduction The role of budgets (standard cost & static Vs. Flexible budgets) Main types of variances o Variances in direct costs o Variances in indirect costs ! Variable indirect costs ! Fixed indirect costs o Variances in sales revenues From the budgeted income statement to the actual income statement Possible causes of variances Report on variances PLANNING AND CONTROL THE ROLE OF BUDGETS – STANDARD COSTS - To build up our budget, we need to set Standard Costs Standard Cost: a predetermined cost or quantity o Standard quantity: is a carefully predetermined quantity of input (kg of materials, labor hours, …) required for one unit of output CA - ssegues o Standard Cost: carefully predetermined cost of one standard input unit (cost of one kg of materials, cost of one labor hour, …) THE ROLE OF BUDGETS – STATIC VS. FLEXIBLE Static Budgets: budget that is based on the level of output planned at the beginning of the period. Standard selling prices and costs are maintained as budgeted. - Budget for the expected level of output Flexible Budgets: budget that is based on the actual level of output. Standard selling prices and costs are maintained as budget. - Budget adjusted to actual output achieved PLANNING AND CONTROL STATIC BUDGET AND ACTUAL DATA CA - ssegues FLEXIBLE BUDGET AND ACTUAL DATA VARIANCE ANALYSIS USING STATIC AND FLEXIBLE BUDGETS CA - ssegues VARIANCE ANALYISIS TERMINOLOGY Variance: Difference between an actual result and a budgeted amount - Variances in Direct Costs Variances in indirect Costs Variances in Sales Revenues Favorable Variance (F): - A variance that increases operating income o Actual revenues are higher than budgeted (Actual rev. – Budgeted rev. > 0) o Actual costs are lower than budgeted (Budgeted costs – Actual costs > 0) Unfavorable Variance (U): - A variance that decreases operating income o Actual revenues are lower than budgeted (Actual rev. – Budgeted rev. < 0) o Actual costs are higher than budgeted (Budgeted costs – Actual costs < 0) VARIANCES IN DIRECT COSTS Variances in direct costs (Raw materials and direct labor) - Sales Volume Variance: Differences in budgeted data due to difference between actual and budgeted output units Flexible Budget Variances: o Efficiency (Quantity) Variance: Actual input quantity differs from budgeted o Price variance: actual input price differs from budgeted o Joint Price-Quantity Variance CA - ssegues FLEXIBLIE BUDGET VARIANCE OF DIRECT COSTS Variances in Direct Costs (Raw Materials and Direct Labour) - - - Global Variance (Budget cost – Actual cost) Pure Efficiency (Quantity) Variance o Actual quantity (qa) differs from budgeted quantity (qb) Quantity variance = qb x pb – qa x pb =(qb –qa) x pb Pure Price Variance o Actual price (pa) differs from budgeted price (pb) Pure price variance = qb x pb – qb x pa= (pb –pa) x qb Joint Price-Quantity Variance (sometimes allocated to price var.) o Both variables differ Joint Price-Quantity variance = (pb - pa) x (qb - qa) Note: We compare actual data to flexible budgets: qb should be adjusted to actual production (budgeted input quantity per unit * actual output units) EXAMPLE 1 – VARIANCE ANALYSIS OF DIRECT COSTS CA - ssegues VARIANCES IN INDIRECT COSTS Variance Analysis for Indirect Costs depends on available information. - If indirect costs are not divided into its fixed and variable part o Global analysis at cost center or for each cost item: ! Budgeted Indirect Costs – Actual Indirect Costs If indirect costs are divided into its fixed and variable part – more detailed analysis possible a) Variances in Variable indirect costs Variances in Variable Indirect Costs (e.g. energy, indirect materials, indirect labor...)"should be broken down into each item to disentangle the Global Variance - Sales Volume Variance: Differences in budgeted data due to difference between actual and budgeted output units. Flexible Budget Variances o Efficiency (Quantity) Variance: Actual quantities of allocation base differ from budgeted (qa – qb) x pb o Spending (Price) Variance: Actual indirect cost rate differs from budgeted: (pa – pb) x qa Note: We compare actual data to flexible budgets: qb should be adjusted to actual production (budgeted input quantity per unit * actual output units) CA - ssegues b) Variances in Fixed indirect costs: CA - ssegues EXAMPLE 2 – VARIANCES IN INDIRECT COSTS VARIANCES IN SALES REVENUES Sales Volume Variance (Quantity): Differences in budgeted data due to difference between actual and budgeted output units. (qa –qb) x pb (Selling) Price Variance : Difference in actual and budgeted revenues due to differences between actual and budgeted selling price. (pa –pb) x qa CA - ssegues EXAMPLE – 3: VARIANCE ANALYSIS OF SALES REVENUES FROM THE BUDGETED INCOME STATEMENT TO THE ACTUAL INCOME STATEMENT CA - ssegues POSSIBLE CAUSES OF VARIANCES ...