In this chapter, the following content will be discussed: Cost management, activity-based management (ABM), business process re-engineering (BPR), life cycle costing and budgeting, target costing, managing throughput, managing quality, total quality management (TQM). | Lecture 16: Direct Cost Variance and Management Control (Continued) A General Model for Variance Analysis Variance Analysis Price Variance Difference between actual price and standard price Quantity Variance Difference between actual quantity and standard quantity 2 10-2 2 Differences between standard prices and actual prices and standard quantities and actual quantities are called variances. The act of computing and interpreting variances is called variance analysis. Variance Analysis Price Variance Quantity Variance Materials price variance Labor rate variance VOH spending variance Materials quantity variance Labor efficiency variance VOH efficiency variance A General Model for Variance Analysis 3 10-3 3 Price and quantity variances can be computed for all three variable cost elements – direct materials, direct labor, and variable manufacturing overhead – even though the variances have different names as shown. Price Variance Quantity Variance Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price A General Model for Variance Analysis 4 10-4 4 Although price and quantity variances are known by different names, they are computed exactly the same way (as shown on this slide) for direct materials, direct labor, and variable manufacturing overhead. Price Variance Quantity Variance Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price A General Model for Variance Analysis Actual quantity is the amount of direct materials, direct labor, and variable manufacturing overhead actually used. 5 10-5 5 The actual quantity represents the amount of direct materials, direct labor, and variable manufacturing overhead actually used. Price Variance Quantity Variance Actual Quantity Actual Quantity Standard Quantity × × × Actual Price Standard Price Standard Price A General Model for Variance Analysis Standard quantity is the standard quantity allowed for the actual output of the . | Lecture 16: Direct Cost Variance and Management Control (Continued) A General Model for Variance Analysis Variance Analysis Price Variance Difference between actual price and standard price Quantity Variance Difference between actual quantity and standard quantity 2 10-2 2 Differences between standard prices and actual prices and standard quantities and actual quantities are called variances. The act of computing and interpreting variances is called variance analysis. Variance Analysis Price Variance Quantity Variance Materials price variance Labor rate variance VOH spending variance Materials quantity variance Labor efficiency variance VOH efficiency variance A General Model for Variance Analysis 3 10-3 3 Price and quantity variances can be computed for all three variable cost elements – direct materials, direct labor, and variable manufacturing overhead – even though the variances have different names as shown. Price Variance Quantity Variance Actual Quantity Actual Quantity .
