Accounting Chapter 23

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<ul><li><p>Flexible Budgets and StandardCost SystemsChapter 2323-*Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Learning ObjectivesPrepare flexible budgets and performance reports using static and flexible budgetsIdentify the benefits of a standard cost system and understand how standards are set23-*Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Learning ObjectivesCompute the standard cost variances for direct materials and direct laborCompute the standard cost variances for manufacturing overhead23-*Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Learning ObjectivesDescribe the relationship among and responsibility for the product cost variancesRecord transactions in a standard cost system and prepare a standard cost income statement23-*Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Learning Objective 1Prepare flexible budgets and performance reports using static and flexible budgets23-*Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Budgeting ObjectivesCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Budget VarianceThe difference between:Actual amountBudgeted amountCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Static Budget Performance ReportCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Favorable versus Unfavorable VariancesFavorable (F) if an actual amount increases operating incomeActual revenue &gt; Budgeted revenueActual expense &lt; Budgeted expenseUnfavorable (U) if an actual amount decreases operating incomeActual revenue &lt; Budgeted revenueActual expense &gt; Budgeted expenseCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Static Budget Performance ReportCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Information Needed toCreate a Flexible BudgetBudgeted selling price per unitVariable cost per unitProduct CostsDirect materialsDirect laborVariable manufacturing overheadVariable selling and administrative expensesTotal fixed costsFixed manufacturing overheadFixed selling and administrative expensesDifferent volume levels within the relevant rangeCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Flexible BudgetCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Budget VariancesCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*Exhibit 23-4 Budget VariancesFlexible Budget VarianceSales Volume VarianceStatic Budget VarianceFlexible BudgetBased on actualnumber of units soldStatic BudgetBased on expectednumber of units soldActual Results </p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Variance FormulasFlexible Budget Variance= Actual Results Flexible Budget(based on 52,000 units sold)(based on 52,000 units sold)Sales Volume Variance= Flexible Budget Static Budget(based on 52,000 units sold)(based on 50,000 units sold)Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Flexible Budget Performance ReportCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*Sales Volume Variance$ 3,250 FFlexible Budget Variance$ 680 UStatic Budget Variance$ 2,570 F</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>1. Garland Company expects to sell 600 wreaths in December 2014, but wants to plan for 100 more and 100 less than expected. The wreaths sell for $5.00 each and have variable costs of $2.00 each. Fixed costs are expected to be $500 for the month. Prepare a flexible budget for 500, 600, and 700 wreaths.Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Learning Objective 2Identify the benefits of a standard cost system and understand how standards are set23-*Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>StandardsSet standards for CostEfficiency (amount)Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Standard Setting IssuesCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Cheerful ColorsStandard Cost CalculationsExhibit 23-7 Standard Cost CalculationsDirect materials cost standard for paraffin:Purchase price, net of discounts$1.65per poundDelivery, receiving, and inspection0.10per poundTotal standard cost per pound of paraffin$1. 75per poundDirect labor cost standard:Hourly wage$10.00per direct labor hourPayroll taxes and fringe benefits2.00per direct labor hourTotal standard cost per direct labor hour$12.00per direct labor hourVariable overhead cost standard: Estimated variable overhead cost= $ 37,500Estimated quantity of allocation base12,500 direct labor hours=$ 3.00 per direct labor hourFixed overhead cost standard: Estimated fixed overhead cost= $ 25,000Estimated quantity of allocation base 12,500 direct labor hours=$ 2.00 per direct labor hourCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Cheerful ColorsEfficiency StandardsCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Standard Cost System BenefitsStandard costing helps managers:Prepare the master budgetSet target levels of performance for flexible budgetsIdentify performance standardsSet sales prices of products and servicesDecrease accounting costsCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Cost and Efficiency VariancesCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*Exhibit 23-8 Cost and Efficiency VariancesActual QuantityStandard Quantity AllowedActual QuantityStandard CostStandard CostActual CostCost VarianceEfficiency VarianceTotal Product Cost Variance</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Cost Variance FormulaCost Variance= (Actual Cost Actual Quantity) (Standard Cost Actual Quantity)= (Actual Cost Standard Cost) Actual Quantity= (AC SC) AQCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Efficiency Variance FormulaEfficiency Variance= (Standard Cost Actual Quantity) (Standard Cost Standard Quantity)= (Actual Quantity Standard Quantity) Standard Cost= (AQ SQ) SCCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Variance RelationshipsCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*Exhibit 23-9 Variance RelationshipsCostVarianceEfficiencyVarianceFlexible Budget VarianceSales Volume VarianceStatic Budget VarianceFlexible BudgetBased on actualnumber of units soldStatic BudgetBased on expectednumber of units soldActual Results </p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Match the definitions to the correct variance.VarianceDefinition2.Cost varianceThe difference between the expected results inthe flexible budget for the actual units sold and the static budget.3.Efficiency varianceThe difference between actual results and the expected results in the flexible budget for theactual units sold.4.Flexible budget variancec.Measures how well the business keeps unit costs of material and labor inputs within standards.5.Sales volume varianced.The difference between actual results and the expected results in the static budget.6.Static budget varianceMeasures how well the business uses itsmaterials or human resources.</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Match the definitions to the correct variance.VarianceDefinition2.Cost varianceThe difference between the expected results inthe flexible budget for the actual units sold and the static budget.3.Efficiency varianceThe difference between actual results and the expected results in the flexible budget for theactual units sold.4.Flexible budget variancec.Measures how well the business keeps unit costs of material and labor inputs within standards.5.Sales volume varianced.The difference between actual results and the expected results in the static budget.6.Static budget varianceMeasures how well the business uses itsmaterials or human resources.</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Match the definitions to the correct variance.VarianceDefinition2.Cost varianceThe difference between the expected results inthe flexible budget for the actual units sold and the static budget.3.Efficiency varianceThe difference between actual results and the expected results in the flexible budget for theactual units sold.4.Flexible budget variancec.Measures how well the business keeps unit costs of material and labor inputs within standards.5.Sales volume varianced.The difference between actual results and the expected results in the static budget.6.Static budget varianceMeasures how well the business uses itsmaterials or human resources.</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Match the definitions to the correct variance.VarianceDefinition2.Cost varianceThe difference between the expected results inthe flexible budget for the actual units sold and the static budget.3.Efficiency varianceThe difference between actual results and the expected results in the flexible budget for theactual units sold.4.Flexible budget variancec.Measures how well the business keeps unit costs of material and labor inputs within standards.5.Sales volume varianced.The difference between actual results and the expected results in the static budget.6.Static budget varianceMeasures how well the business uses itsmaterials or human resources.</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Match the definitions to the correct variance.VarianceDefinition2.Cost varianceThe difference between the expected results inthe flexible budget for the actual units sold and the static budget.3.Efficiency varianceThe difference between actual results and the expected results in the flexible budget for theactual units sold.4.Flexible budget variancec.Measures how well the business keeps unit costs of material and labor inputs within standards.5.Sales volume varianced.The difference between actual results and the expected results in the static budget.6.Static budget varianceMeasures how well the business uses itsmaterials or human resources.</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Match the definitions to the correct variance.VarianceDefinition2.Cost varianceThe difference between the expected results inthe flexible budget for the actual units sold and the static budget.3.Efficiency varianceThe difference between actual results and the expected results in the flexible budget for theactual units sold.4.Flexible budget variancec.Measures how well the business keeps unit costs of material and labor inputs within standards.5.Sales volume varianced.The difference between actual results and the expected results in the static budget.6.Static budget varianceMeasures how well the business uses itsmaterials or human resources.</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Learning Objective 3Compute the standard cost variances for direct materials and direct labor23-*Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Flexible Budget Variancesfor Production CostsCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Direct Materials DataCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Direct Materials VariancesDirect Materials Cost Variance= (AC SC) AQ</p><p>Direct Materials Efficiency Variance= (AQ SQ) SC</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Direct Materials VariancesDirect Materials Cost Variance= (AC SC) AQ= ($1.60 per pound $1.75 per pound) 65,000 pounds= $9,750 F</p><p>Direct Materials Efficiency Variance= (AQ SQ) SCCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Direct Materials VariancesDirect Materials Cost Variance= (AC SC) AQ= ($1.60 per pound $1.75 per pound) 65,000 pounds= $9,750 F</p><p>Direct Materials Efficiency Variance= (AQ SQ) SC= (65,000 pounds 52,000 pounds) $1.75 per pound= $22,750 U</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Direct Materials VariancesCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*Exhibit 23-11 Direct Materials Variances</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Direct Labor DataCopyright 2014 Pearson Education, Inc. Publishing as Prentice Hall23-*</p><p>Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall</p></li><li><p>Direct Labor VariancesDirect Labor Cost Variance= (AC SC) AQ</p><p>Direct Labor Effici...</p></li></ul>