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Chapter 22 22 Performance Evaluation Performance Evaluation Using Variances Using Variances from from Standard Costs Standard

Chapter Chapter 2222

Performance Evaluation

Performance

Evaluation

Using Variances

Using

Variances from

from

Standard Costs

Standard

Costs

Accounting, 21 st Edition

Warren Reeve Fess © Copyright 2004 South-Western, a division of Thomson Learning. All rights reserved.
Warren
Reeve
Fess
© Copyright 2004 South-Western, a division
of Thomson Learning. All rights reserved.

Task Force Image Gallery clip art included in this electronic presentation is used with the permission of NVTech Inc.

PowerPoint Presentation by Douglas Cloud

Professor Emeritus of Accounting Pepperdine University

Some Some of of the the action action has has been been automated, automated, so so
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so so click click the the mouse mouse when when you you see see this this
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Objectives

Objectives

Objectives

Objectives

Objectives Objectives Objectives Objectives and how 1. Describe the types of standards After studying After After

and how

1. Describe the types of standards

After studying

After

After studying

After

studying this

studying this

this

this

chapter,

chapter, you

chapter,

chapter, you

you should

you should

should

should

bebe able

bebe able

able to:

to:

able to:

to:

they are established for businesses.

  • 2. Explain and illustrate how standards are used in budgeting.

  • 3. Calculate and interpret direct materials price and quantity variances.

  • 4. Calculate and interpret direct labor rate and time variances.

Objectives Objectives Objectives Objectives and how 1. Describe the types of standards After studying After After

Objectives

Objectives

Objectives

Objectives

Objectives Objectives Objectives Objectives 5. Calculate and interpret factory overhead controllable and volume variances. 6. Journalize
  • 5. Calculate and interpret factory overhead controllable and volume variances.

  • 6. Journalize the entries for recording standards in the accounts and prepare an income statement that includes variances from standards.

  • 7. Explain how standards may be used for nonmanufacturing expenses.

Objectives Objectives Objectives Objectives 5. Calculate and interpret factory overhead controllable and volume variances. 6. Journalize
  • 8. Explain and provide examples of nonfinancial performance measures.

Standards—Performance Benchmarks Benchmarks Standards—Performance Standards—Performance Benchmarks Standards—Performance Benchmarks
Standards—Performance
Benchmarks
Benchmarks
Standards—Performance
Standards—Performance Benchmarks
Standards—Performance Benchmarks
Standards—Performance Benchmarks Benchmarks Standards—Performance Standards—Performance Benchmarks Standards—Performance Benchmarks Setting Standards Setting Standards Requires joint efforts of

Setting Standards

Setting

Standards

Requires joint efforts of accountants, engineers, and other management personnel

Types ofof Standards

Types

Standards

Theoretical or ideal (world record) standards Currently attainable standards (normal standards)

Reviewing and

Reviewing

and Revising

Revising Standards

Standards

Standards—Performance Benchmarks Benchmarks Standards—Performance Standards—Performance Benchmarks Standards—Performance Benchmarks Setting Standards Setting Standards Requires joint efforts of

Should be revised when they no longer reflect

operating conditions they intended to measure

Western Rider Inc., a manufacturer of blue jeans, uses standard manufacturing costs in its budgets.
Western Rider Inc., a manufacturer of blue jeans, uses standard manufacturing costs in its budgets.
Western Rider Inc., a
manufacturer of blue
jeans, uses standard
manufacturing costs
in its budgets.
Western Rider Inc. Standard Cost per Pair of XL Jeans Direct materials: $5.00 per square yard
Western Rider Inc.
Standard Cost per Pair of XL Jeans
Direct materials:
$5.00 per square yard x 1.5 square yards
=
$
7.50
Direct labor:
$9.00 per hour x 0.80 hour per pair
=
7.20
Factory overhead:
$6.00 per hour x 0.80 hour per pair =
4.80
Total standard cost per pair
$19.50
Western Rider Inc. Budget Performance Report For the Month Ended June 30, 2006 Cost Variance Actual
Western Rider Inc.
Budget Performance Report
For the Month Ended June 30, 2006
Cost
Variance
Actual
Standard Cost
at Actual
Volume
(5,000 units)
(favorable)
Manufacturing Costs
Costs
Unfavorable
5,000 x
5,000 x
5,000 x
5,000 x
Direct materials
Direct labor
Factory overhead
Total mfg. costs
$ 40,150
$37,500
$2,650
$7.50 per
$7.50 per
$7.50 per
$7.50 per
38,500
36,000
2,500
pair
pair
pair
pair
22,400
24,000
(1,600)
$101,050
$97,500
$3,550
Direct Materials Price Direct Materials Price Variance Variance Direct Materials Price Direct Materials Price Variance Variance
Direct Materials Price Direct Materials Price Variance Variance
Direct Materials Price
Direct Materials Price
Variance
Variance
Direct Materials Price Direct Materials Price Variance Variance Direct Materials Price Direct Materials Price Variance Variance

Direct Materials Price

Direct Materials Price

Variance

Variance

Direct Direct Direct Direct Cost Cost
Direct
Direct
Direct
Direct
Cost
Cost

Materials

Materials

Materials

Cost Variance

Variance

Cost Variance

Variance

  • Materials

Direct Labor Rate

Direct Labor Rate

Variance

Variance

Total

Total

Total

Total

Manufacturing

Manufacturing

Manufacturing

Manufacturing

Cost Variance

Cost

Cost Variance

Cost

Variance

Variance

Total Total Total Total Manufacturing Manufacturing Manufacturing Manufacturing Cost Variance Cost Cost Variance Cost Variance Variance

Direct

Direct

Direct

Direct

Labor

Labor

Labor

Labor

Cost Variance

Cost

Cost Variance

Cost

Variance

Variance

Direct Materials Price Direct Materials Price Variance Variance Direct Materials Price Direct Materials Price Variance Variance

Direct Labor Time

Direct Labor Time

Variance

Variance

Variable Variable Factory Factory Overhead Overhead

Controllable Controllable Variance Variance

Factory Factory Factory Factory Overhead Overhead Overhead Overhead Cost Cost Variance Variance Cost Cost Variance Variance
Factory
Factory
Factory
Factory
Overhead
Overhead
Overhead
Overhead
Cost
Cost Variance
Variance
Cost
Cost Variance
Variance
Fixed Fixed Factory Factory Overhead Overhead
Volume Volume Variance Variance
Direct Materials Direct Direct Materials Direct Materials Price Materials Price Price Variance Price Variance Variance Variance

Direct Materials

Direct

Direct Materials

Direct

Materials Price

Materials Price

Price Variance

Price Variance

Variance

Variance

Actual price per unit $5.50 per sq. yd. Standard price per unit 5.00 per sq. yd.
Actual price per unit
$5.50 per sq. yd.
Standard price per unit
5.00
per sq. yd.
Price variance (unfavorable)
$0.50 per sq. yd.

$0.50 times the actual quantity of 7,300 sq. yds.

= $3,650 unfavorable

Direct Materials Direct Direct Materials Direct Materials Price Materials Price Price Variance Price Variance Variance Variance
Direct Materials Direct Direct Materials Direct Materials Quantity Materials Quantity Quantity Variance Variance Quantity Variance Variance

Direct Materials

Direct

Direct Materials

Direct

Materials Quantity

Materials Quantity

Quantity Variance

Variance

Quantity Variance

Variance

Actual quantity used 7,300 sq. yds. Standard quantity at actual production 7,500 Quantity variance (favorable) (200)
Actual quantity used
7,300 sq. yds.
Standard quantity at
actual production
7,500
Quantity variance (favorable) (200) sq. yds.

(200) square yards times the standard price of

$5.00 = ($1,000) favorable

Direct Materials Direct Direct Materials Direct Materials Quantity Materials Quantity Quantity Variance Variance Quantity Variance Variance
Direct Materials Direct Direct Materials Direct Materials Materials Variance Relationships Variance Variance Relationships Variance Relationships Relationships

Direct Materials

Direct

Direct Materials

Direct

Materials

Materials

Variance Relationships

Variance

Variance Relationships

Variance

Relationships

Relationships

Actual quantity x

Actual price

7,300 x $5.50 =

$40,150

Actual quantity x

Standard price

7,300 x $5.00 =

$36,500

Standard quantity

x Standard price

7,500 x $5.00 =

$37,500

Direct Materials Direct Direct Materials Direct Materials Materials Variance Relationships Variance Variance Relationships Variance Relationships Relationships
Direct Materials Direct Direct Materials Direct Materials Materials Variance Relationships Variance Variance Relationships Variance Relationships Relationships

Material Price

Material Quantity

Variance

Variance

($1,000) F
($1,000) F

$3,650 U

Materials Materials
Materials
Materials

Direct Materials

Direct

Direct Materials

Direct

Variance Relationships

Variance

Variance Relationships

Variance

Relationships

Relationships

Actual quantity x

Actual price

7,300 x $5.50 =

$40,150

Actual quantity x

Standard price

7,300 x $5.00 =

$36,500

Standard quantity

x Standard price

7,500 x $5.00 =

$37,500

Materials Materials Direct Materials Direct Direct Materials Direct Variance Relationships Variance Variance Relationships Variance Relationships Relationships

Total Direct Materials Cost Variance

$2,650 U
$2,650 U
Direct Labor Direct Direct Labor Direct Labor Variances Variances Labor Variances Variances Standard direct labor hours

Direct Labor

Direct

Direct Labor

Direct

Labor Variances

Variances

Labor Variances

Variances

Standard direct labor hours per

of XL jeans

Actual units produced

Standard direct labor hours

0.80 direct labor hour

x 5,000 pairs of jeans

budgeted for actual

production

Standard rate per DLH

4,000 direct labor hours

x $9.00

Standard direct labor cost

$36,000
$36,000

at actual production

Direct Labor Direct Direct Labor Direct Labor Variances Variances Labor Variances Variances Actual direct labor hours

Direct Labor

Direct

Direct Labor

Direct

Labor Variances

Variances

Labor Variances

Variances

Actual direct labor hours

used in production

Actual rate per direct labor

hour

3,850 direct labor hours

x $10.00

Total actual direct labor cost $ 38,500

Direct Labor Direct Direct Labor Direct Labor Variances Variances Labor Variances Variances Actual direct labor hours
Direct Labor Direct Direct Labor Direct Labor Rate Labor Rate Rate Variance Variance Rate Variance Variance

Direct Labor

Direct

Direct Labor

Direct

Labor Rate

Labor Rate

Rate Variance

Variance

Rate Variance

Variance

Actual rate $10.00 Standard rate 9.00 Rate variance (unfavorable) $1.00 per DLH
Actual rate
$10.00
Standard rate
9.00
Rate variance (unfavorable)
$1.00 per DLH

$1.00 times the actual time of 3,850 hours =

$3,850 unfavorable

Direct Labor Direct Direct Labor Direct Labor Rate Labor Rate Rate Variance Variance Rate Variance Variance
Direct Labor Direct Direct Labor Direct Labor Time Labor Time Time Variance Variance Time Variance Variance

Direct Labor

Direct

Direct Labor

Direct

Labor Time

Labor Time

Time Variance

Variance

Time Variance

Variance

Actual hours 3,850 DLH Standard hours at actual production 4,000 Time variance (150) DLH
Actual hours
3,850 DLH
Standard hours at actual
production
4,000
Time variance
(150) DLH

(150) Direct labor hours times the standard rate

of $9.00 = ($1,350) favorable

Direct Labor Direct Direct Labor Direct Labor Time Labor Time Time Variance Variance Time Variance Variance
Direct Direct Labor Direct Direct Labor Labor Variance Variance Labor Variance Variance Relationships Relationships Relationships Relationships

Direct

Direct Labor

Direct

Direct Labor

Labor Variance

Variance

Labor Variance

Variance

Relationships

Relationships

Relationships

Relationships

Actual hours x Actual rate 3,850 x $10 = $38,500 Direct Labor Rate Variance $3,850 U
Actual hours x
Actual rate
3,850 x $10 =
$38,500
Direct Labor
Rate Variance
$3,850 U

Actual hours x

Standard hours x

Standard rate

4,000 x $9.00 =

$36,000

Standard rate

3,850 x $9.00 =

$34,650

Direct Direct Labor Direct Direct Labor Labor Variance Variance Labor Variance Variance Relationships Relationships Relationships Relationships

Direct Labor

Time Variance

($1,350) F
($1,350) F
Variance Variance
Variance
Variance

Direct

Direct Labor

Direct

Direct Labor

Labor Variance

Labor Variance

Relationships

Relationships

Relationships

Relationships

Actual hours x Actual rate 3,850 x $10 = $38,500
Actual hours x
Actual rate
3,850 x $10 =
$38,500

Actual hours x

Standard hours x

Standard rate

4,000 x $9.00 =

$36,000

Variance Variance Direct Direct Labor Direct Direct Labor Labor Variance Labor Variance Relationships Relationships Relationships Relationships

Standard rate

3,850 x $9.00 =

$34,650

Total Direct Labor Cost Variance

$2,500 U
$2,500 U
Overhead is applied at $6.00 per direct labor hour based on estimated 5,000 total hours.
Overhead is applied at $6.00 per direct labor hour based on estimated 5,000 total hours.
Overhead is applied at $6.00 per direct labor hour
based on estimated 5,000 total hours.
Variances from standard for factory overhead result from: 1. Actual variable factory overhead cost greater or
Variances from standard for factory overhead result from: 1. Actual variable factory overhead cost greater or

Variances from standard for

factory overhead result from:

1. Actual variable factory

overhead cost greater or less

than budgeted variable

factory overhead for actual

production.

2. Actual production at a level

above or below 100% of

normal capacity.

Variances from standard for factory overhead result from: 1. Actual variable factory overhead cost greater or
Western Rider Inc. produced 5,000 pairs of XL jeans in June. Each pair requires 0.80 standard

Western Rider Inc. produced 5,000 pairs

of XL jeans in June. Each pair requires

0.80 standard labor hours for production.

The firm operated at 80% of capacity.

Direct Labor Hours

4,000 5,000 5,500 Percentage of capacity 80% 100% 110% Total variable costs $14,400 $18,000 $19,800 Actual
4,000
5,000
5,500
Percentage of capacity
80%
100%
110%
Total variable costs
$14,400
$18,000
$19,800
Actual variable overhead
10,400
Variable overhead
variance—favorable
$(4,000) F
Level of activity
Controllable variance
Controllable variance
based on variable costs
based on variable costs
Western Rider Inc. produced 5,000 pairs of XL jeans in June. Each pair requires 0.80 standard

Western Rider Inc. produced 5,000 pairs

of XL jeans in June. Each pair requires

0.80 standard labor hours for production.

The firm operated at 80% of capacity.

Percentage of capacity

Total fixed costs Fixed cost per DLH

Direct Labor Hours

4,000 5,000 5,500 80% 100% 110% 12,000 12,000 12,000 $3.00 $2.40 $2.18
4,000
5,000
5,500
80%
100%
110%
12,000
12,000
12,000
$3.00
$2.40
$2.18
Desired Desired Standard Standard hours hours capacity capacity at at actual actual production production
Desired
Desired
Standard
Standard hours
hours
capacity
capacity
at
at actual
actual
production
production
Western Rider Inc. produced 5,000 pairs of XL jeans in June. Each pair requires 0.80 standard

Western Rider Inc. produced 5,000 pairs

of XL jeans in June. Each pair requires

0.80 standard labor hours for production.

The firm operated at 80% of capacity.

Percentage of capacity

Total fixed costs Fixed cost per DLH

Direct Labor Hours

4,000 5,000 5,500 80% 100% 110% 12,000 12,000 12,000 $3.00 $2.40 $2.18
4,000
5,000
5,500
80%
100%
110%
12,000
12,000
12,000
$3.00
$2.40
$2.18
100% of normal capacity 5,000 DLH Standard hours at actual production 4,000 DLH Capacity not used
100% of normal capacity
5,000
DLH
Standard hours at actual production
4,000
DLH
Capacity not used
1,000 DLH
Standard fixed overhead rate at 100%
x $2.40
Fixed overhead volume variance
$ 2,400
U
Western Rider Inc. Factory Overhead Cost Variance Report For the Month Ended June 30, 2006 Productive
Western Rider Inc.
Factory Overhead Cost Variance Report
For the Month Ended June 30, 2006
Productive capacity for the month (100% of normal)
5,000 hours
Actual production for the month
4,000 hours
Budget
(at Actual
Production)
Variances
Actual
Favorable
Unfavorable
Variable factory overhead costs
$14,400
$10,400
$4,000
Fixed factory overhead costs
12,000
12,000
Total factory overhead costs
$26,400
$22,400
Total controllable variances
$4,000
$
0
Net controllable variances—
favorable
$4,000
Volume variance—unfavorable:
Capacity not used at the standard rate for fixed
factory overhead—1,000 x $2.40
2,400
Total factory overhead cost variance--favorable
$1,600
Fixed Overhead Fixed Fixed Overhead Fixed Overhead Variances Overhead Variances Variances and Variances and and the

Fixed Overhead

Fixed

Fixed Overhead

Fixed

Overhead Variances

Overhead Variances

Variances and

Variances and

and the

the

and the

the

Factory Overhead

Factory

Factory Overhead

Factory

Overhead Account

Account

Overhead Account

Account

Factory Overhead

Actual factory Applied factory overhead $22,400 overhead $24,000 Balance, June 30 1,600 $10,400 + $10,400 +
Actual factory
Applied factory
overhead
$22,400
overhead
$24,000
Balance, June 30
1,600
$10,400 +
$10,400 +
4,000 hours x
4,000 hours x
$12,000
$12,000
$6.00 per hour
$6.00 per hour
Fixed Overhead Fixed Fixed Overhead Fixed Overhead Variances Overhead Variances Variances and Variances and and the

Fixed Overhead

Fixed

Fixed Overhead

Fixed

Overhead Variances

Overhead Variances

Variances and

Variances and

and the

the

and the

the

Factory Overhead

Factory

Factory Overhead

Factory

Overhead Account

Account

Overhead Account

Account

Factory Overhead

Actual factory Applied factory overhead $22,400 overhead $24,000 Balance, June 30 1,600 Controllable Variance: $4,000 F
Actual factory
Applied factory
overhead
$22,400
overhead
$24,000
Balance, June 30
1,600
Controllable
Variance:
$4,000 F
$22,400 – $26,400
$22,400 – $26,400
Fixed Overhead Fixed Fixed Overhead Fixed Overhead Variances Overhead Variances Variances and Variances and and the

Fixed Overhead

Fixed

Fixed Overhead

Fixed

Overhead Variances

Overhead Variances

Variances and

Variances and

and the

the

and the

the

Factory Overhead

Factory

Factory Overhead

Factory

Overhead Account

Account

Overhead Account

Account

Factory Overhead

Actual factory Applied factory overhead $22,400 overhead $24,000 Balance, June 30 1,600 Volume Variance: $2,400 U
Actual factory
Applied factory
overhead
$22,400
overhead
$24,000
Balance, June 30
1,600
Volume
Variance:
$2,400 U
$26,400 – $24,000
$26,400 – $24,000
Variances and Variances and and the and the the the
Variances and
Variances and
and the
and the
the
the

Fixed Overhead

Fixed

Fixed Overhead

Fixed

Overhead Variances

Overhead Variances

Factory Overhead

Factory

Factory Overhead

Factory

Overhead Account

Account

Overhead Account

Account

Total Factory Overhead Variance

Controllable variance

$4,000 F

Volume variance

2,400 U

Total

$1,600 F

Variances and Variances and and the and the the the Fixed Overhead Fixed Fixed Overhead Fixed
Fixed Overhead Fixed Fixed Overhead Fixed Overhead Variances Overhead Variances Variances and Variances and and the

Fixed Overhead

Fixed

Fixed Overhead

Fixed

Overhead Variances

Overhead Variances

Variances and

Variances and

and the

the

and the

the

Factory Overhead

Factory

Factory Overhead

Factory

Overhead Account

Account

Overhead Account

Account

Budgeted Factory Overhead for Amount Produced

Controllable variance

Fixed factory overhead

Total

$14,400

12,000

$26,400

Fixed Overhead Fixed Fixed Overhead Fixed Overhead Variances Overhead Variances Variances and Variances and and the
Recording and from Reporting Variances Standards

Recording

and from
and
from

Reporting

Variances

Standards

On August

On

On August

On

August 1,

August 1,

1, Western

1, Western

Western Rider

Western Rider

Rider Inc.

Inc.

Rider Inc.

Inc.

purchased,

purchased, onon account,

purchased,

purchased, onon account,

account, the

account, the

the 7,300

the 7,300

7,300 square

7,300 square

square

square

yards

yards of

yards

yards of

of blue

of blue

blue denim

blue denim

denim at

denim at

at $5.50

at $5.50

$5.50 per

$5.50 per

per square

per square

square

square

yard. Recall,

yard.

yard. Recall,

yard.

Recall, the

Recall, the

the standard

the standard

standard price

standard price

price was

price was

was $5.00.

$5.00.

was $5.00.

$5.00.

On August On On August On August 1, August 1, 1, Western 1, Western Western Rider
Aug. 1 Materials (7,300 sq. yds. X $5.00) Direct Materials Price Variance Accounts Payable 36 500
Aug. 1 Materials (7,300 sq. yds. X $5.00)
Direct Materials Price Variance
Accounts Payable
36 500 00
3 650 00
40 150 00
$3,650 U $5.50 x 7,300 = $40,150 Direct materials $5.00 x 7,300 = $36,500 price variance
$3,650 U
$5.50
x
7,300
= $40,150
Direct
materials
$5.00
x
7,300
= $36,500
price
variance
Western Western Rider Western used 7,300 Western Rider Rider Inc. Rider Inc. Inc. used Inc. used
Western Western Rider Western used 7,300 Western Rider Rider Inc. Rider Inc. Inc. used Inc. used
Western
Western Rider
Western
used 7,300
Western Rider
Rider Inc.
Rider Inc.
Inc. used
Inc. used
used 7,300
7,300 square
7,300 square
square yards
square yards
yards
yards
of
of blue
of
of blue
blue denim
blue denim
denim toto produce
denim toto produce
produce 5,000
produce 5,000
5,000 pairs
5,000 pairs
pairs of
pairs ofof XLXL
of XLXL
jeans,
jeans, compared
jeans,
jeans, compared
compared toto the
the standard
the standard
standard of
of 7,500
compared toto the
standard of
of 7,500
7,500
7,500
square
square yards.
square
the entry
square yards.
yards. Date
yards. Date
Date the
Date the
the entry
entry August
entry August
August 31.
August 31.
31.
31.
Aug. 31 Work in Process (7,500 x $5.00) Direct Materials Quantity Variance Materials (7,300 x $5.00)
Aug. 31 Work in Process (7,500 x $5.00)
Direct Materials Quantity Variance
Materials (7,300 x $5.00)
37 500 00
1 000 00
36 500 00

Standard price

$5.00

Standard price

$5.00
$5.00

quantity

$1,000 F x Actual quantity 7,300 = $36,500 Direct x Standard Materials 7,500 = $37,500 quantity
$1,000 F
x Actual quantity
7,300
= $36,500
Direct
x
Standard
Materials
7,500
= $37,500
quantity
variance
For For the the month month ofof August, Inc. accrued For For the the month month
For
For the
the month
month ofof August,
Inc. accrued
For
For the
the month
month ofof August,
August, Western
August, Western
Western Rider
Western Rider
Rider Inc.
Rider Inc.
Inc. accrued
accrued
accrued
wages
wages ofof $38,500
wages
wages ofof $38,500
$38,500 (3,850
$38,500 (3,850
(3,850 hours
at $10
(3,850 hours
hours at
hours at
at $10
$10 per
per hour)
$10 per
per hour)
hour) inin
hour) inin
producing
producing 5,000
producing
5,000 XLXL Jeans.
producing 5,000
5,000 XLXL Jeans.
Jeans. The
The standard
Jeans. The
The standard
standard rate
rate isis $9$9 per
standard rate
rate isis $9$9 per
per
per
hour
hour and
hour
and each
and each
each pair
pair ofof jeans
pair ofof jeans
jeans had
had aa time
hour and
jeans had
had aa time
time standard
each pair
time standard
standard ofof 0.8
standard ofof 0.8
0.8 hr.
0.8 hr.
hr.
hr.
Aug. 31
Work in Process
36
000 00
3 850 00
Direct Direct Labor Labor Rate Time Variance Variance
1 350 00
Wages Payable
38 500 00

$10.00

Actual rate

Standard rate

$9.00

Standard rate

$9.00

For For the the month month ofof August, Inc. accrued For For the the month month
x Actual hours 3,850 = $38,500 $3,850 U (rate) x Actual hours 3,850 = $34,650 $1,350
x
Actual hours
3,850
= $38,500
$3,850 U (rate)
x
Actual hours
3,850
= $34,650
$1,350 F (time)
x
Standard quantity
4,000
= $36,000

This entry is not shown in the textbook.

Western Rider Inc.

Income Statement For the Month Ended June 30, 2006 Sales…………………………………… $140,000 Cost of goods sold…………………… ..
Income Statement
For the Month Ended June 30, 2006
Sales…………………………………… $140,000
Cost of goods sold……………………
..
97,500

Gross profit--at standard……………….

Less variances from standard cost:

$ 42,500

Favorable Unfavorable

Direct materials price……………… .. $3,650 Direct materials quantity……………. $1,000 Direct labor rate…………………… .. 3,850 Direct labor
Direct materials price………………
..
$3,650
Direct materials quantity…………….
$1,000
Direct labor rate……………………
..
3,850
Direct labor time…………………….
1,350
Factory overhead controllable……….
4,000
Factory overhead volume……………
2,400
3,550
Gross profit…………………………….
$38,950
Operating expenses…………………….
25,725
Income before income tax……………
..
$13,225
Nonfinancial Performance Measures  Inventory turnover  On-time delivery  Elapsed time between a customer order

Nonfinancial

Performance Measures

Inventory turnover On-time delivery

Elapsed time between a customer order and product delivery

Customer preference rankings compared to competitors Response time to a service call Time to develop new products Employee satisfaction Number of customer complaints

Nonfinancial Performance Measures  Inventory turnover  On-time delivery  Elapsed time between a customer order

Nonfinancial Performance

Nonfinancial Performance Measures (Fast Food Restaurant) Inputs Inputs Inputs Inputs Employee training Employee Employee training Employee

Measures (Fast Food

Restaurant)

Inputs

Inputs

Inputs

Inputs

Employee training

Employee

Employee training

Employee

training

training

Employee experience

Employee

Employee experience

Employee

experience

experience

Number

Number ofof new

Number

Number ofof new

new menu

menu

new menu

menu

items

items

items

items

Number ofof employees

Number

Number ofof employees

Number

employees

employees

Fryer reliability

Fryer

reliability

Fryer reliability

Fryer

reliability

Fountain supply

Fountain

Fountain supply

Fountain

supply

availability

availability

availability

availability

supply

Outputs

Outputs

Outputs

Outputs

score

score

score

score

Line Line wait wait Line Line wait wait Activity Percent Percent order order Percent Percent order
Line
Line wait
wait
Line
Line wait
wait
Activity
Percent
Percent order
order
Percent
Percent order
order
Counter
accuracy
accuracy
accuracy
accuracy
service
Friendly
Friendly service
service
Friendly
Friendly service
service
Nonfinancial Performance Measures (Fast Food Restaurant) Inputs Inputs Inputs Inputs Employee training Employee Employee training Employee
Chapter 22 22 The End The End

Chapter

Chapter 2222

The End The End
The End
The End