F5 Variance

7/31/2019 F5 Variance

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STDM: Optimal alternative selected to achieve objective

- CVP

- Limiting factors Decision (LFD)

- Mutually Exclisive Decision (MED)

- Pricing Decision (PD)


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Q. 7

(a) Target costing process

- Target cost= Competitive market price - Profit margin

- Determining a product specification using analysis ofwhat customers want => product features

- Set selling price -desired profit margin => target cost.

If the cost is higer => cost gap = costs - target. Try to close the gap.

(b) Benefits of adopting target costing

- External focus:look at what competitors are offering at earlier stage

- Customer focus: Only features that are value to customers will be included in the product design

- Cost control: emphasised at the design stage. Changes must happen before production stage

- Faster time to market: "get things right first time" and avoids go back to the drawing board

- Enhances profitability: Costs per unit are often lower under a target costing environment.

(c) Steps to reduce a cost gap

- Review features

- Team approach: bring together members, brainstorming to allow discussion of methods to reduce costs

- Review the whole supplier chain: Each step in the supply chain should be reviewed

- Components: look at the significant costs involved in components

- Assembly workers: Productivity gains by changing working practices or by de-skilling the process. Automation- Overheads: Productivity increases help by spreading FOH over a greater number of units

- Consider ABC approach to its OH allocation => reveal more favourable cost allocations or ideas for reducing costs


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Products Revenue Cumulative Cumulative profit

Non-production 0 -8

Start Z 0 -10

Finish Z 264 21.68

Start W 264 19.68Finish W 346 26.24

Start Y 346 24.24

Finish Y 460 8.28

-8

-10

21.6

19.6

-15

-10

-5

0

5

10

15

20

25

30

-100 0 100 200

Cumulative profit

Cu


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1000

8

8

26.24

24.24

8.28

00 400 500

ulative profit


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No. Syllabus topic Chapter Question numbers Note

11 Environmental accounting U1: MA Intro 12, 22

28 Not-for-profit organisations U1: MA Intro NPO 66, 67, 68, 69, Mock 3 Q5

1 Absorption costing U3: CAS CP(Single period) 1, 2, 3, 4, 5, 10, Mock 2 Q1, Mock

3 Q4

2 Activity based costing U3: CAS Costing principle 2, 3, 4, 5, 6, 10, 36, 68, Mock 1

Q1, Mock 2 Q2,Mock 3 Q4

21 Life-cycle costing U3: CAS CP(Multiperiod) 7, 9, 10, 38

24 Marginal costing U3: CAS CP(Single period) 1, 11, 48, 50

46 Target costing U3: CAS Costing principle 7, 8, 10

47 Throughput accounting U3: CAS Costing principle 10, 11, 12, 13

7 Cost function U4: DMT C5: Pricing decisions 20, 328 Cost volume profit (CVP) analysis U4: DMT C3: CPV 14, 15

9 Decision rules U4: DMT C7: Risk & Uncertainty 30, 31, 32, 33

10 Demand U4: DMT C5: Pricing decisions 20, 32

12 Expected values U4: DMT C7: Risk & Uncertainty 30, 31, 32, 39

17 Further processing decision U4: DMT C6: ST decision 24, 29

19 Incremental costs and revenues U4: DMT C5: Pricing decisions 29

22 Linear programming U4: DMT C4: LF analysis 16, 17, 18, 19, Mock 3 Q3

23 Make-or-buy decisions U4: DMT C6: ST decision 26

25 Market research U4: DMT C7: Risk & Uncertainty 7, 20, 32

30 Outsourcing U4: DMT C6: ST decision 26, 27, 28

32 Pricing decisions U4: DMT C5: Pricing decisions 3, 4, 5, 20, 21, 22, 23, 25, 28, 29,

43, Mock 2 Q2

33 Process costing U4: DMT C6: ST decision 24

35 Relevant costs U4: DMT C6: ST decision 24, 2536 Research techniques U4: DMT C7: Risk & Uncertainty 31, 33

40 Risk and uncertainty in decision making U4: DMT C7: Risk & Uncertainty 30, 31, 32, 33, Mock 2 Q5

41 Sensitivity analysis U4: DMT C7: Risk & Uncertainty 30, 32

43 Shutdown decisions U4: DMT C6: ST decision 28

5 Budgetary systems and types U5: Budgeting 35, 36, 38, 45, 69, Mock 3 Q5

6 Budgeting objectives U5: Budgeting 34, 72

15 Flexible budgets U5: Budgeting 45, 51

16 Forecasting U5: Budgeting Quantitative analysis 8, 37, 73

20 Learning curve U5: Budgeting 40, 41, 42, 43, 68, Mock 1 Q5

34 Quantitative analysis in budgeting U5: Budgeting 37, 39, 40, 41, 42, 44, 45, Mock 1

Q2

39 Revised budgets U5: Budgeting 54

44 Spreadsheets U5: Budgeting Quantitative analysis 37

4 Behavioural aspects of standard costing U6: SC & VA 48, 49, 51, 52, 68

18 Idle time variances U6: SC & VA 49, 68

26 Material mix and yield variances U6: SC & VA 49, 52, 53, 55

29 Operating statements U6: SC & VA 46, 48, 67, Mock 2 Q3

31 Planning and operating variances U6: SC & VA 52, 54

45 Standard costs U6: SC & VA 48, 49, 52, Mock 1 Q3

49 Variance analysis U6: SC & VA 45, 46, 47, 48, 49, 50, 51, 52, 53,

55, 56, 57,Mock 1 Q3, Mock 2

Q3, Mock 3 Q1

48 Transfer pricing U7: TP Divisional performance

measures

60, 61, 64, 65

3 Balanced Scorecard U8: PM Scorecard 59, Mock 2 Q413 Financial performance indicators U8: PM FPI 58, 59, 60, 61, 62, 66, 70, 71, 73,

74, 75, 76,Mock 1 Q4, Mock 3 Q2

14 Fitzgerald & Moon Building Block model U8: PM Bulding Block Model 60, 75

27 Non-financial performance indicators U8: PM N-FPI 58, 59, 63, 68, 71, 74, 75, 76,

Mock 3 Q2

37 Residual income U8: PM Divisional performance

measures

60, 61, 62, Mock 2 Q4

38 Return on investment U8: PM Divisional performance

measures

59, 60, 62, 74, Mock 2 Q4

42 Short-termism U8: PM Short-termism and

manipulation

58, 73


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Chng trnh Giang day Kinh te Fulbright

Nam hoc 2007 - 2008Bai thc ha

x y VP

State the constraints

Silk powder 3 x 2 y 5,000

Silk amino acids 1 x 0.5 y 1,600

Skilled labour 4 x 5 y 9,600

0 x 1 y = 2,000

C = 9x + 8y 9 x 8 y 7,200

x y1 y2 y3 y4 Cont.

- 2,500.00 3,200.00 1,920.00 2,000.00 900.00

1,600.00 100.00 - 640.00 2,000.00 (900.00)

1,400.00 400.00 400.00 800.00 2,000.00 (675.00)

828.57 1,257.14 1,542.86 1,257.14 2,000.00 (32.14)

333.33 2,000.00 2,533.33 1,653.33 2,000.00 525.00

1,066.67 900.00 1,066.67 1,066.67 2,000.00 (300.00)

600.00 1,600.00 2,000.00 1,440.00 2,000.00 225.00

(100.00) 2,650.00 3,400.00 2,000.00 2,000.00 1,012.50

C = 9x + 8y


Silk powder 3x + 2y 5,000Silk amino acids 1x + 05y 1,600Skilled labour 4x + 5y 9,600

c, 828.57, 0

c, 828.57, 12c, 0, 1257.14

D, 0, 400

y = -1.5x + 2500

y = -2x + 3200

y = -0.8x + 1920

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

- 500 1,000

Axis Title

Tran Thanh Phong/ Tran Thanh Thai


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Nam hoc 2007 - 2008Bai thc hanh 3

> Cn tm t nht 2 ta imLn lt cho x mt gi tr no ri tnh ra y

Axis Title

Tran Thanh Phong/ Tran Thanh Thai 7


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Nam hoc 2007 - 2008Bai thc han

(a) Optimum production plan

Define the variables

Let x = no. of jars of face cream to be produced

Let y = no. of bottles of body lotion to be producedLet C = contribution

State the objective function

The objective is to maximise contribution, C

C = 9x + 8y


Silk powder 3x + 2y 5,000Silk amino acids 1x + 05y 1,600Skilled labour 4x + 5y 9,600Non-negativity constraints:

x, y 0Sales constraint:

y 2,000



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Nam hoc 2007 - 2008Bai thc han

Draw the graph

Silk powder 3x + 2y = 5,000

If x = 0, then 2y = 5,000, therefore y = 2,500

If y = 0, then 3x = 5,000, therefore x = 1,6667

Silk amino acids 1x +05y = 1,600If x = 0, then 05y = 1,600, therefore y = 3,200

If y = 0, then x = 1,600

Skilled labour 4x + 5y = 9,600

If x = 0, then 5y = 9,600, therefore y = 1,920

If y = 0, then 4x = 9,600, therefore x = 2,400



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Nam hoc 2007 - 2008Bai thc ha

A B y x y A A-1

x y

y1 2,500 -1.5 x 2,500 1,666.67 0 y1 3.0 2.0 5,000 -1

y2 3,200 -2 x 3,200 1,600.00 0 y2 1.0 0.5 1,600 2

y3 1,920 -0.8 x 1,920 2,400.00 0 y1 3.0 2.0 5,000 1

y4 2,000 0 x 2,000 #DIV/0! 0 y3 4.0 5.0 9,600 -1

Cont. 900 -1.125 x 900 800.00 0 y1 3.0 2.0 5,000 0

y4 0.0 1.0 2,000 0y2 1.0 0.5 1,600 2

y3 4.0 5.0 9,600 -1

y2 1.0 0.5 1,600 1

y4 0.0 1.0 2,000 0

y3 4.0 5.0 9,600 0

y4 0.0 1.0 2,000 0

x y

1 1,400.00 400.00

2 828.57 1,257.14

3 333.33 2,000.00

4 1,066.67 1,066.67

5 600.00 2,000.00

6 (100.00) 2,000.00

57.14

D, 1400, 0

D, 1400, 400

1,500 2,000

y1y2y3y4Cont.Dy1y2y3

y4Cont.y1y2y3y4Cont.Dy1y2y3y4Cont.y1y2



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S 10

COS 7.105

GP 2.895

y3y4



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4 x1= 1,400.0

-6 y1= 400.0

0 x2= 828.6

0 y2= 1,257.1

-1 x3= 333.3

1 y3= 2,000.00 x4= 1,066.7

0 y4= 1,066.7

-1 x5= 600.0

1 y5= 2,000.0

-1 x6= -100.0

1 y6= 2,000.0



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CIMA -Managerial Paper P1 (Mgt Accounting - Performance Evaluation) - Pg 236

Planning Variance: or revision variance - campares an original standard with a

revised standard that would have been used if the planner had known what was going

to happen

Operational Variance: or Operating variance - compares an actual results with

revised standard

Example 6.2:

At the beginning of 20x0, WB set a standard marginal cost for its

major product of $25 per unit. The standard cost is recalculated

once a year. Actual production cost during August 20x0 were

304000, and actual units 8,000 produced

With the benefit of hindsight, the management of WB realized that

realistic standard cost for current conditions would be $40 per unit.

The planned Standard cost of $25 is unrealistically low.

Required: Calculate the total planning and operational variance

Planning Variance:Standard Cost (8,000 x $ 25) 200,000

Revised Standard (8,000 x $ 40) 320,000

Planning Variance 120,000 UF

Operational variance:Revised Standard (8,000 x $ 40) 320,000

Actual Cost 304,000

Operational Variance 16,000 Fav

Total Variance 104,000 UF

Tradtional Variance:Standard Cost (8,000 x $ 25) 200,000

Actual Cost 304,000104,000 UF


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1 Direct material cost variances

I. 1 Direct material purchased price variances $

Actual qty should cost x 2,300 kg should cost ( 2300 kg x $4) 9,200

Actual qty did cost x But did cost 9,800

Direct material price variance -600 (A)

2 Direct material usage variances

4850 units should use ( 4850 units x 0.5kg) 2,425

But did used 2,300

125 (F)

at Standard cost per unit $4.00

$500 (F)

II. Direct labour cost variances3 Direct labour price variances

8500 hours should cost ( 8500 hours x $2) 17,000

But did cost 16,800

200 (F)

4 Direct labour Efficiency variances

4850 units should take ( 4850 units x 2 hrs) 9,700

But did take 8,000

1,700 (F)

at Std cost $2.0

3,400 (F)

5 Direct labour Iddle time variances

Hours paid 8,500

Hours works 8,000

-500 (A)

at Std cost $2.0

-1,000 (A)

III. Variable production overhead variances (POH)

6 Variable P. O. H. expenditure variance

8000 hours incurring overhea ( 8000 hours x $0.3) 2,400

But dis cost 2,600

-200 (A)

7 Variable P. O. H. Efficiency variance

4850 units should take ( 4850 units x 2 hrs) 9,700

But dis take 8,000

1,700 (F)

at Std cost $0.30

510 (F)IV. Fixed production overheads variances

8 Fixed POH expenditure variances

Budgeted F.O.H ( 5100 units x 0.6) 37,740

Actual Fixed overhead 42,300

-4,560 (A)

Fixed POH volume variances

9 eficiency variance

10 capacity variances

V. Sales variances

11 Sales Selling price variance

12 Sales Sales volume profit variance


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Relevant cost is any type ofcost that is subject to change, depending on what kind ofdecision is made.

Considered a key function within management accounting, the idea behind this type of cost definition is to determine how the budget will be

impacted if a particular course of action is pursued.

In order to properly evaluate the situation, it is necessary to look at all current costs, and determine which ones would change as a result of the

decision, and which ones would remain constant. Those that will change are said to be relevant to the consideration of that course of action.

Assessing the relevant cost is not a particularly difficult process. All that is required is to project the chain of events that will take place should a

particular action be taken. For example, a restaurant that wishes to attract more customers for lunchtime may consider implementing a lunchtime

special that is only available for a few hours each day. Before actually implementing this new offering, the owner will look closely at what type of

impact the project will have on labor, supplies, and utilities.

If it is determined that the number of servers on duty is sufficient to handle the larger lunch crowd, that cost factor is not relevant, as it changes

nothing from what already takes place. Should it be determined that an additional laborer in the kitchen is needed to prepare food during the

lunchtime period, this does constitute a change in labor costs and would be considered a relevant cost. Since more food would likely be required to

manage the additional lunchtime customers, that cost would also be relevant.

The same general principal can be applied to just about any decision. Investors may look at what choosing a given investment scheme would mean

in terms of additional expense or demand of their time, and determine if the effort is worth the expected outcome. Shopkeepers can decide if

adding a specific product to the items they carry is likely to result in an increase of sales volume that will offset the cost of ordering that additional

product. Understanding what the decision will change as far as the normal state of operations always makes it easier to determine if the decision is

ultimately beneficial, or likely to have a negative impact.

Understanding the type and nature of a relevant cost can make it much easier to use the accounting process to effectively manage expense, thus

increasing the opportunity for earning a profit. Should the amount of relevant cost be so great that the potential for earning profit is greatly

diminished, it may be determined that the course of action under consideration is not viable, and is abandoned. From this perspective, identified a

relevant cost or costs in any given situation not only enhances the potential for increasing profits, but also prevents the deterioration of the current

level of profit.


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Microsoft Excel 14.0 Answer Report

Worksheet: [F5_ Variance.xlsx]PTb1

Report Created: 26/03/2012 1:38:23 PM

Result: Solver found a solution. All Constraints and optimality conditions are satisfied.

Solver Engine

Engine: GRG Nonlinear

Solution Time: 0 Seconds.Iterations: 0 Subproblems: 0

Solver Options

Max Time Unlimited, Iterations Unlimited, Precision 0.000001

Convergence 0.0001, Population Size 100, Random Seed 0, Derivatives Central

Max Subproblems Unlimited, Max Integer Sols Unlimited, Integer Tolerance 1%

Objective Cell (Max)

Cell Name Original Value Final Value

$V$14 y3 VT 9,600 9,600

Variable Cells

Cell Name Original Value Final Value Integer

$U$14 y3 Bin 320 320 Contin

$U$15 y4 Bin 2,000 2,000 Contin

Constraints

Cell Name Cell Value Formula Status Slack

$V$10 y2 VT 1,600 $V$10=$W$10 Binding 0

$V$11 y3 VT 9,600 $V$11=$W$11 Binding 0$V$12 y2 VT 1,600 $V$12=$W$12 Binding 0

$V$13 y4 VT 2,000 $V$13=$W$13 Binding 0

$V$14 y3 VT 9,600 $V$14=$W$14 Binding 0

$V$15 y4 VT 2,000 $V$15=$W$15 Binding 0

$V$4 y1 VT 5,000 $V$4=$W$4 Binding 0

$V$5 y2 VT 1,600 $V$5=$W$5 Binding 0

$V$6 y1 VT 5,000 $V$6=$W$6 Binding 0

$V$7 y3 VT 9,600 $V$7=$W$7 Binding 0

$V$8 y1 VT 5,000 $V$8=$W$8 Binding 0

$V$9 y4 VT 2,000 $V$9=$W$9 Binding 0


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ax by cz Bien Ve trai Ve phai

1 2 3 5 26 25

2 1 1 -3 16 14

1 4 2 9 11 10

B1: Lp bi ton trn Excel A*X=B ==> x=A-1

*B

A X B

1 2 3 x 25

2 1 1 y 14

1 4 2 z 10

B2: Tm ma trn nghch o ca h A

-0.15385 0.615385 -0.07692

-0.23077 -0.07692 0.384615

0.538462 -0.15385 -0.23077

x= 4y= -3

z= 9


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Calculating basic variances

Material Variance

xxx - Price variance

Actual qty should cost x

Actual qty did cost x

Variance x

xxx - Usage varianceActual product should use x

Actual production did use x

x

@ std rate x

Variance x

Labour variance

xxx - Rate variance

Actual hrs should have cost x

Actual hrs did cost x

Variance x

xxx - Efficiency

Actual production should take x

Actual production did take x

x

@ std rate x

Variance x

Variable overhead variance

xxx - Expenditure

Actual hrs should have cost x

Actual hrs did cost x

Variance xxxx - Efficiency

Actual production should take x

Actual production did take x

x

@ std rate x

Variance x

Fixed overhead variance

xxx - Expenditure

Budgeted O/Hs x

Actual O/Hs x

Variance xPage 25 of 296

xxx - Volume

Budgeted units x

Actual units x

x

@ absorption rate x

Variance x

o Capacity


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Budgeted hours x

Actual hrs worked x

X

@ absorption rate x

Variance x

o Efficiency

Actual production should take xActual production did take x

x

@ absorption rate x

Variance x

xxx - Sales variance

o Price

Actual qty should sell for x

Did sell for x

Variance x

o Volume

Budgeted units x

Actual units x

x

@ std profit x

Variance x

Robert A. McLean, 2004

Total variance = (AQ * AP) - (SQ * SP)

Price variance = (AP - SP) * AQ

Quantity variance = (AQ - SQ) * SP

Total variance = Price variance + Quantity varian


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F5 Variance

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