BUSI 101 1st Edition Lecture 26Outline of Last Lecture I. Budgeting Continueda. E9-4AII. Introduction to Chapter 10a. Page 151 in Coursepackb. Managerial Accounting Textbooki. E10-10III. Exam Practice Problemsa. Page 200Outline of Current Lecture I. Chapter 10 equations – ROI & RI ReviewII. Page 202 – Chapter 10 Practice Exam QuestionsIII. Ex. 10-15IV. Ex. 10-3AV. Chapter 11 Variances Introductiona. 6 Variancesb. Problems in CoursepackCurrent LectureROI=(Net Income)/InvestmentResidual Income=NI-(%desired return)(investment)These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.- Residual Income equation will give you a decision that is in line with the company as a whole- Preferred over ROIPage 20241. Answer: Dy=a+bxy=12,000+16(20,000)y=332,00042. Answer: Ba. 40,000/500,000=8%, YESb. 30,000/450,000=6% NOc. 32,000/375,000=8.533% YESd. 40,000/425,000=9.41% YES43. Answer: A(because they are both over 25%)Cost center – place where costs are measured Profit center – place where profit is measuredInvestment Center – where the size of investment is measuredRevenue center – where revenues are measured44. Answer: AEx10-15)W.5 M.5 C.5Sales-VC600,000-350,000 (1)450,000-320,000430,000 (6)-250,000=CM-DFC(controllable FC)=Segment Margin(controllable margin)=250,000-100,000=150,000 (2)=130,000 (3)-40,000 (4)90,000=180,000-85,000 (5)=95,000P10-3A) see page 156 in Course pack for answersActual Costing System – Chapter 1 (actual DM, actual DL, actual OHD)Normal Costing System – Chapter 2 (actual DM, actual DL, applied OHD)Standard Costing System – Chapter 11 (standard DM, standard DL, standard OHD)- Set in advance by consultantsStandard Costs – 2 types of differencesPrice variances (rate variances or spending variances)- Differences in input pricesPrice variances - materialsRate variances –laborSpending variances – overheadEfficiency variances (quantity variances or usage variances)- How efficiently resources were usedTotal variances will be calculated by comparing actual costs at actual output levels with budgeted/standard costs at actual output levelsStd. = unitBudgeted = totalIf Actual>STD (unfavorable)If Actual<STD (favorable)6 VariancesDirect Materials:- Price Variance: AQ(AP-SP)- Efficiency Variance: (AQ-SQ)SPStandard Quantity: what should have been used or what should have been consumed given the actual output levelActual Flexible Budget Actual Inputs Flexible Budgets Actual OutputsAQxAP AQxSP SQxSPPage 161 in CoursepackKimzey:SQ: 4 pounds per unitSP: $10 per poundActual Flexible Budget Actual Inputs Flexible Budgets Actual OutputsAQxAP AQxSP SQxSP(4000)(9) (4000)(10) (32,000)(10)36,000 40,000 32,000MPV: 40,000-36,000=4000 FavorableMEV=32,000-40,000=8000UnfavorableOverall Variance: 4000 Unfavorable1. a2. cMahoney:80,000/8000=$10AQxAP AQxSP SQxSP? ? ?MPV: 88,000 MEV=100,000Overall Variance: 12,000 FavorableDillon:Direct Labor – Actual Flexible Budget Actual Inputs Flexible Budgets Actual OutputsAHxAR AHxSR SHxSR18,000 ? 17,500LPV=? LEV=?Overall Variance: 5000 Unfavorable20,000/400=$50 = SR350x50=17,500Level:Actual Flexible Budget Actual Inputs Flexible Budgets Actual OutputsAHxAR AHxSR SHxSR(1900)(4.75) (1900)(5) (2000)(5)9025 9500 10,000LPV=475 F LEV=500FOverall Variance: 975 FavorableAR=4.75OHD: Actual FBAI FBAO STD or App.Variable SHxSR SHxSRFixed BHxSR SHxSRTotalFBAO Total-Actual Total = Controllable or Flexible Budget VarianceApp. Total-FBAO Total = volume or denominator or capacity variance