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Performance Evaluation Flexible Budget and Variances Example: Flexible Budget and Variance Standards per unit Original Budget (100 units) Actuals per unit Actual Cost (90 units) DM 2 yds @ $1/yd. = $2 per unit 200 2.2 yds @ $1.50/yd. 297 DL .5hrs @ $6/hr = $3 per unit 300 .4hrs @ $7/hr. 252 Overhead Variable $1 per unit 100 Fixed 300 Total 400 380 Example: Flexible Budget and Variance Standards per unit Original Budget (100 units) Actuals per unit Actual Cost (90 units) DM 2 yds @ $1/yd. = $2 per unit 200 2.2 yds @ $1.50/yd. 297 DL .5hrs @ $6/hr = $3 per unit 300 .4hrs @ $7/hr. 252 Overhead Variable $1 per unit 100 Fixed $3 per unit 300 Total $4 per unit 400 380 Example: Flexible Budget and Variance Standards per unit Original Budget (100 units) Flexible Budget (90 units) Actuals per unit Actual Cost (90 units) DM 2 yds @ $1/yd. = $2 per unit 200 2.2 yds @ $1.50/yd. 297 DL .5hrs @ $6/hr = $3 per unit 300 .4hrs @ $7/hr. 252 Overhead Variable $1 per unit 100 Fixed $3 per unit 300 Total $4 per unit 400 380 Example: Flexible Budget and Variance Standards per unit Original Budget (100 units) Flexible Budget (90 units) Actuals per unit Actual Cost (90 units) DM 2 yds @ $1/yd. = $2 per unit 200 180 2.2 yds @ $1.50/yd. 297 DL .5hrs @ $6/hr = $3 per unit 300 .4hrs @ $7/hr. 252 Overhead Variable $1 per unit 100 Fixed $3 per unit 300 Total $4 per unit 400 380 Example: Flexible Budget and Variance Standards per unit Original Budget (100 units) Flexible Budget (90 units) Actuals per unit Actual Cost (90 units) DM 2 yds @ $1/yd. = $2 per unit 200 180 2.2 yds @ $1.50/yd. 297 DL .5hrs @ $6/hr = $3 per unit 300 270 .4hrs @ $7/hr. 252 Overhea d Variable $1 per unit 100 Fixed $3 per unit 300 Total $4 per unit 400 380 Example: Flexible Budget and Variance Standards per unit Original Budget (100 units) Flexible Budget (90 units) Actuals per unit Actual Cost (90 units) DM 2 yds @ $1/yd. = $2 per unit 200 180 2.2 yds @ $1.50/yd. 297 DL .5hrs @ $6/hr = $3 per unit 300 270 .4hrs @ $7/hr. 252 Overhea d Variable $1 per unit 100 90 Fixed $3 per unit 300 300 Total $4 per unit 400 390 380 Example: Flexible Budget and Variance Standards per unit Original Budget (100 units) Flexible Budget (90 units) Actuals per unit Actual Cost (90 units) Flex - Actual Variance DM 2 yds @ $1/yd. = $2 per unit 200 180 2.2 yds @ $1.50/yd. 297 DL .5hrs @ $6/hr = $3 per unit 300 270 .4hr s @ $7/hr. 252 Overhead Variable $1 per unit 100 90 Fixed $3 per unit 300 300 Total $4 per unit 400 390 380 Example: Flexible Budget and Variance Standards per unit Original Budget (100 units) Flexible Budget (90 units) Actuals per unit Actual Cost (90 units) Flex - Actual Variance DM 2 yds @ $1/yd. = $2 per unit 200 180 2.2 yds @ $1.50/yd. 297 117U DL .5hrs @ $6/hr = $3 per unit 300 270 .4hrs @ $7/hr. 252 18F Overhead Variable $1 per unit 100 90 Fixed $3 per unit 300 300 Total $4 per unit 400 390 380 10F Direct Material Variances Usage Variance = (SQ – AQ) x SP Price Variance = (SP – AP) x AQ Direct Labor Variances Efficiency Variance = (SQ – AQ) x SP Rate Variance = (SP – AP) x AQ Direct Cost Variances Standard per Unit Actual per Unit Actual Units Direct Material 2 yds. @ $1/yd. 2.2 yds. @ $1.50/yd. 90 SP SQ AP AQ Direct Material Variances Standard per Unit Actual per Unit Actual Units Direct Material 2 yds. @ $1/yd. 2.2 yds. @ $1.50/yd. 90 SP $1/yd. SQ AP $1.50/yd. AQ Direct Material Variances Standard per Unit Actual per Unit Actual Units Direct Material 2 yds. @ $1/yd. 2.2 yds. @ $1.50/yd. 90 SP $1/yd. SQ 2 yds./ unit x 90 units = 180 yds. AP $1.50/yd. AQ 2.2 yds./unit x 90 units = 198 yds. Direct Material Variances Standard per Unit Actual per Unit Actual Units Direct Material 2 yds. @ $1/yd. 2.2 yds. @ $1.50/yd. 90 SP $1/yd. SQ 2 yds./ unit x 90 units = 180 yds. AP $1.50/yd. AQ 2.2 yds./unit x 90 units = 198 yds. Direct Material Variances Usage Variance = (SQ – AQ) x SP Price Variance = (SP – AP) x AQ Standard per Unit Actual per Unit Actual Units Direct Material 2 yds. @ $1/yd. 2.2 yds. @ $1.50/yd. 90 SP $1/yd. SQ 2 yds./ unit x 90 units = 180 yds. AP $1.50/yd. AQ 2.2 yds./unit x 90 units = 198 yds. Direct Material Variances Usage Variance = (SQ – AQ) x SP (180 – 198) x $1 = 18 U Price Variance = (SP – AP) x AQ ($1 - $1.50) x 198 = 99 U Total = 117 U 180 yds. Volume SQ Price SP $1 Standard Cost Direct Material Variances 180 yds. 198 yds. Volume SQ AQ Price AP $1.50 SP $1 Actual Cost Direct Material Variances 180 yds. 198 yds. Volume SQ AQ Price AP $1.50 SP $1 Price Variance Usage Variance Direct Material Variances Standard per Unit Actual per Unit Actual Units Direct Labor .5 hrs. @ $6/hr. .4 hrs. @ $7/hr. 90 SP SQ AP AQ Direct Labor Variances Standard per Unit Actual per Unit Actual Units Direct Labor .5 hrs. @ $6/hr. .4 hrs. @ $7/hr. 90 SP $6/hr. SQ AP $7/hr. AQ Direct Labor Variances Standard per Unit Actual per Unit Actual Units Direct Labor .5 hrs. @ $6/hr. .4 hrs. @ $7/hr. 90 SP $6/hr. SQ .5 hrs./unit x 90 units = 45 hrs. AP $7/hr. AQ .4 hrs./unit x 90 units = 36 hrs. Direct Labor Variances Standard per Unit Actual per Unit Actual Units Direct Labor .5 hrs. @ $6/hr. .4 hrs. @ $7/hr. 90 SP $6/hr. SQ .5 hrs./unit x 90 units = 45 hrs. AP $7/hr. AQ .4 hrs./unit x 90 units = 36 hrs. Direct Labor Variances Efficiency Variance = (SQ – AQ) x SP Rate Variance = (SP – AP) x AQ Standard per Unit Actual per Unit Actual Units Direct Labor .5 hrs. @ $6/hr. .4 hrs. @ $7/hr. 90 SP $6/hr. SQ .5 hrs./unit x 90 units = 45 hrs. AP $7/hr. AQ .4 hrs./unit x 90 units = 36 hrs. Direct Labor Variances Efficiency Variance = (SQ – AQ) x SP (45 – 36) x $6 = 54 F Rate Variance = (SP – AP) x AQ ($6 - $7) x 36 = 36 U Total = 18 F 45 hrs. Volume SQ Price SP $6 Standard Cost Direct Labor Variances Direct Labor Variances 36 hrs. 45 hrs. Volume AQ SQ Price AP $7 SP $6 Actual Cost Direct Labor Variances 36 hrs. 45 hrs. Volume AQ SQ Price AP $7 SP $6 Actual Cost Rate Variance Efficiency Variance Overhead Spending Variance Flexible – Actual Overhead Volume Variance Absorbed 1 – Flexible Total Overhead Variance Overhead Spending Variance + Overhead Volume Variance 1. Sometimes called “Applied” Overhead Variances Original Budget Flexible Budget Actual Volume 100 units 90 units 90 units Variable 100 90 Fixed 300 300 Total 400 390 380 Flexible 390 Actual 380 Absorbed = Overhead per unit from Original Budget = $400/100 units = $4 x Actual units x 90 Total Absorbed = $360 Overhead Variances Overhead Spending Variance Flexible – Actual = 390 – 380 = 10 F Overhead Volume Variance Absorbed 1 – Flexible = 360 – 390 = 30 U Total Overhead Variance Overhead Spending Variance + Overhead Volume Variance = 10 F + 30 U = 20 U 1. Sometimes called “Applied” Overhead Variances $400 $300 100 Volume (units) Flexible Budget = $300 + $1 x Units $ $400 $300 90 100 Volume (units) $ Flexible Budget = $300 + $1 x Units Flexible Budget at 90 units = $300 + $ x 90 = $390 Spending Variance = Flex – Actual = 390 – 380 = 10F 380 $400 $300 90 100 Volume (units) $ Flexible Budget = $300 + $1 x Units Absorbed = $4 x Units Volume Variance = Absorbed – Flex = $4 x 90 – (300 + $1 x 90) = $360 - $390 = 30 U

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