EASY
Master budget based on planned levels of output
Static Budget
Level 1 analysis is comprised of this variance
Static Budget Variance
Actual DM = 120,000
Static DM = 100,000
Flexible DM = 113,000
Determine the sales volume variance and state favorability
13,000 (Unfavorable)
This variance is a credit
Favorable
A departure from the prediction
Variance
Level 2 analysis is comprised of these two variances
Flexible Budget Variance & Sales Volume Variance
Given Wages Payable Control of $200,000 , unfavorable Direct Labor Price Variance of $20,000 , unfavorable Direct Labor Efficiency Variance of $16,000 , the WIP Control is?
$164,000
This variance is a debit
When costs are lower than budgeted costs
Favorable Variance
Flexible Budget Variance is broken down into these two variances
Price (Rate) & Quantity (Efficiency)
Standard
DM = 5 meters at $25/meter
DL = 0.5 hours at $15/hour
Actual
DM = 4.5 meters at $26/meter
DL = 0.7 hours at $13/hour
Production & Sales = 9,000
Determine the Quantity Variance
($112,500)
Contribution Margin variance is ($2,000)
Unfavorable
The practice of focusing attention on areas not operating as expected
Management by exception
Flexible Budget - Static Budget = ?
Sales Volume Variance
Standard
DM = 5 meters at $25/meter
DL = 0.5 hours at $15/hour
Actual
DM = 4.5 meters at $26/meter
DL = 0.7 hours at $13/hour
Production & Sales = 9,000
Determine the Price Variance
$40,500
Fixed Costs Variance is ($10,000)
Favorable
The continuous process of comparing your firm's performance levels against the best levels of performance in competing companies or in companies having similar processes.
Benchmarking
Price (Rate) Variance has the following equation
(AQ x AP) - (AQ x SP)
or
AQ x (AP - SP)
This journal entry records the direct materials purchased given a favorable variance
Dr. DM Controls
Cr. DM Price Variance
Cr. AP Controls
Actual Operating Income = $20,000
Flexible Budget Operating Income = $33,000
Static Budget Operating Income = $27,000
Favorability of the static budget variance isUnfavorable