Accounting Chapter 15

variance

= Budget amount - actual amount the difference between actual and budget; variances are labeled as "favorable" or "unfavorable," usually on the basis of the arithmetic difference between actual and budget.

Fixed manufacturing overhead variance

Is analyzed differently that the variable cost variances. Is often referred to as a budget variance.

price standard

Is the cost of materials to produce the unit.

Raw materials purchase price variance

a variance recognized soon after the purchase of raw materials that is caused by the difference between actual cost and standard cost of raw materials PURCHASED.

Direct fixed expense

an expense assigned to an organizational segment in a segmented income statement that would not be incurred if the segment were eliminated.

usage standard

is the amount of the materials used to produce one product.

standard price

is the amount that should have been paid for the resources acquired.

standard rate

is the amount that was expected to be paid per labor hour used.

rate standard

is the budgeted hourly wage paid to an employee to produce the product

efficiency rate

is the number of hours that should have been used for the output achieved.

Standard quantity

is the quantity that should have been used for the output achieved.

efficiency standard

is the time is takes to produce the product.

Direct labor efficiency variance

that part of the direct labor budget variance due to the difference between actual hours required and standard hours allowed for the work done.

Direct labor rate variance

that part of the direct labor budget variance due to the difference between the actual hourly wage rate paid and the standard rate.

Raw materials usage variance

that part of the raw materials budget variance due to the difference between actual usage and standard usage of raw material.

variable overhead efficiency variance

that part of the variable overhead budget variance due to the difference between actual hours required and standard hours allowed for the work done.

Variable overhead spending variance

that part of the variable overhead budget variance due to the difference between actual variable overhead cost and the standard cost allowed for the actual inputs used (based on direct labor hours, for example).

Price or rate variance

the difference between the actual price or rate and the standard price or rate.

Usage or efficiency variance

the difference between the actual usage or efficiency and the standard quantity.

favorable variance

the excess of actual revenue over budgeted revenue, or budgeted cost over actual cost. • Actual revenue > budget revenue • Actual costs < budget costs

unfavorable variance

the excess of budgeted revenue over actual revenue, or actual cost over budgeted cost. • Actual revenue < budget revenue • Actual costs > budget costs

quantity variance

the part of a variable cost budget variance due to the difference between the actual and standard quantities of inputs.

Raw materials price variance

the part of the raw materials budget variance due to the difference between actual cost and standard cost of raw materials USED.

performance reporting

• A comparison of the actual results to budgeted amounts. • Allows management to determine if the differences between the actual results and the budget are favorable or unfavorable. • Integral part of the control process for management to identify areas that may need adjustments.

standard cost variance

• Based on a carefully predetermined amounts to produce one unit using attainable standards. • Used to plan for the use and cost of material, labor and overhead requirements. • Based on the expected level of performance. • Used to evaluate the actual usage and costs compared to the budgeted amounts for usage and costs for material labor and variable overhead.

flexible budget

• Shows what revenue and/or expenses should be at a specified level of activity. • May be prepared for any activity level in the relevant range. • Used to reveal variances due to good or lack of cost controls. • Used to improve performance evaluation

price and usage standards

• The materials purchased and used will be compared to the standards established for the level of production incurred. A variance will be determined for price versus budgeted price and the quantity actually used versus budgeted quantity.

rate and efficiency standard

• The rate paid and labor hours incurred will be compared to the standard established for the level of production incurred. A variance will be determined for rate actually paid for labor versus the budgeted amount and the actual amount of hours incurred to produce the product versus the budgeted hours.

overhead variances

• overhead is composed of fixed and variable costs