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LECTURE 5 - Lecture example

 “In the Box” Company (ITB) produces cardboard boxes and uses a standard absorption costing system.  The following standard requirements 英语论文网for U-Beaut Big Boxes were determined at the firm’s budgeted production level of 60,000 boxes per month:

Direct materials, 10 square metres of cardboard at 25c per sq. metre ($2.50 unit)
 (for 60,000 units this would have been $150,000)
Direct labour, 20 minutes per box at $18 per hour ($6 per unit)
 (for 60,000 units this would have been $360,000)

Overhead is allocated using machine hours, and each U-Beaut Box takes 40 mns machine time.  Budgeted fixed and variable overhead were $36,000 and $60,000 (60c per unit and $1per unit) respectively.

During a particular period the following transactions took place:
Output    50,000 completed boxes (no WIP)
Cardboard purchased  600,000 sq. metres for $144,000 cash (24c per sq.m)
Cardboard used   520,000 sq metres @ 24c = $124,800
Direct labour hours worked 16,500 hours costing $305,250 ($18.50 per DL hour)
Machine hours worked  33,000 hours
Actual overhead incurred  $37,400 fixed; $59,500 variable

Steps in preparing the variance report

(1) Write the actual costs in the left-hand column.
(2) Show the static budget costs (the budgeted costs for 60,000 boxes) in the right-hand column. 
(3) Flex the budget (see below), i.e. restate the static budget for an activity level of 50,000 boxes.  Insert these figures in the flexible budget column (the middle column) in the table.
(4) Calculate all variances and write them in the table.  Show the amount and direction (favourable (F) or unfavourable (U)) of variances.

Steps to flexing the budget

(1) Identify fixed costs.  Budgeted fixed costs will remain the same regardless of changes in activity level, therefore write the same figure (here $36,000) in the flexible budget column.
(2) For each variable cost determine the variable cost per unit.  (DM = $2.50, DL = $6, V OH = $1).  These variable costs per unit are then multiplied by the actual activity level (here 50,000) to arrive at the flexible budget costs for 50,000 units.  
 

 
LECTURE 5 – STANDARD COSTING; DIRECT MATERIAL AND LABOUR VARIANCES

TEXT READING:
Ch.7  Delete p.242 to end

A. PRELIMINARY ANALYSIS OF VARIANCES

These lecture notes show variances assuming only one direct material, and one direct labour process.  In practice an identical (separate) analysis would be applied to each material and each different labour process.

1. STATIC AND FLEXIBLE BUDGETS REVIEWED

Time now:  30 June

1 July            30 June             
Budgeted           Actually
costs for           produced
60,000.            50,000

Static budget?  Budgeted costs for 60,000 units.
Flexible budget?  Budgeted costs for 50,000 units.

 “Flexing” the budget from the static b本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。