In this chapter, we discuss additional variances to illustrate some of the ways the basic variance analysis model can be extended and adapted to specific circumstances. The basic principles are exactly the same as those we discussed in chapter 16. | Additional Topics in Variance Analysis Chapter 17 Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin In this chapter, we discuss additional variances to illustrate some of the ways the basic variance analysis model can be extended and adapted to specific circumstances. The basic principles are exactly the same as those we discussed in Chapter 16. Profit Variance Analysis . 1 Explain how to prorate variances to inventories and cost of goods sold. Most companies close variances to Cost of Goods Sold. Other companies prorate the variances. 17 - If a company closes the variances to Cost of Goods Sold, Cost of Goods Sold increases due to unfavorable variances. If the variances are favorable Cost of Goods Sold decreases. Profit Variance Analysis Sales (units) Sales revenue Less: Variable costs Variable manufacturing costs Variable selling and administrative Contribution margin Fixed costs: Fixed manufacturing overhead Fixed selling and administrative costs Profit $28,890 U $ U 4,500 F $24,390 U Mfg. Variances (based on 90,000 units produced) $ 4,000 F $ 4,000 F 7,680 F $11,680 F Marketing and Admin. Variances Actual 80,000 $840,000 332,890 68,000 $439,110 195,500 132,320 $111,290 $40,000 F $40,000 F $40,000 F Sales Price Variance 80,000 $800,000 304,000 72,000 $424,000 200,000 140,000 $ 84,000 Flexible Budget $200,000 U 76,000 F 18,000 F $106,000 U -0- -0- $106,000 U Sales Activity Variance 100,000 $1,000,000 380,000 90,000 $ 530,000 200,000 140,000 $ 190,000 Master Budget Bayou Division Profit Variance Analysis (when units produced do not equal units sold) Total variance from flexible budget = $27,290 F Total variance from master budget = $78,710 U LO1 17 - In our analysis in Chapter 16, production and sales volume were both 80,000 units. Suppose, now, that the Bayou Division produced 90,000 units and sold 80,000. This changes our variable manufacturing costs variance. In Chapter 16 we saw that actual . | Additional Topics in Variance Analysis Chapter 17 Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin In this chapter, we discuss additional variances to illustrate some of the ways the basic variance analysis model can be extended and adapted to specific circumstances. The basic principles are exactly the same as those we discussed in Chapter 16. Profit Variance Analysis . 1 Explain how to prorate variances to inventories and cost of goods sold. Most companies close variances to Cost of Goods Sold. Other companies prorate the variances. 17 - If a company closes the variances to Cost of Goods Sold, Cost of Goods Sold increases due to unfavorable variances. If the variances are favorable Cost of Goods Sold decreases. Profit Variance Analysis Sales (units) Sales revenue Less: Variable costs Variable manufacturing costs Variable selling and administrative Contribution margin Fixed costs: Fixed manufacturing overhead Fixed selling and
