6

PERFORMANCE EVALUATION: VARIANCE ANALYSIS

After studying this chapter, you should be able to meet the following learning objectives (LO).

  1. Prepare a flexible budget and explain its use in evaluating performance. (Unit 6.1)
  2. Calculate the direct materials price and quantity variances. (Unit 6.2)
  3. Identify potential causes of the direct materials price and quantity variances. (Unit 6.2)
  4. Calculate the direct labor rate and efficiency variances. (Unit 6.3)
  5. Identify potential causes of the direct labor rate and efficiency variances. (Unit 6.3)
  6. Calculate the variable overhead spending and efficiency variances. (Unit 6.4)
  7. Calculate the fixed overhead spending variance. (Unit 6.4)
  8. Identify potential causes of the variable overhead spending and efficiency variances and the fixed overhead spending variance. (Unit 6.4)

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The Pitch

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Throughout 2011, George Douglas, CEO of C&C Sports, wondered how the year's operations would unfold. Now the picture was becoming clearer. Based on C&C's budget, the sales staff had worked hard, through increased advertising and personal contacts, to increase the sales of award jackets. They were ecstatic to learn they had exceeded their sales goal of 18,000 jackets.

However, Chad Davis, vice president for operations, didn't share in their enthusiasm. Throughout ...

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