CMA Lecture 4 notes - some formulas

CMA Lecture 4 notes - some formulas for Chapter 9

1. Production volume variance

(Actual units produced - Budgeted units produced) x Budgeted overhead rate

An excessive quantity of production is considered to be a favorable variance, while an unfavorable variance is when fewer units are produced than expected.

E.g., Actual units produced are  400 units; budgeted units to produce are 500 units. Budgeted fixed manufacturing costs is $1,000,000. Budgeted overhead rate is ($1,000,000)/ 500 units = $2,000 per unit.

Then, production volume variance = (400-500) x $2,000 = - $200,000 (U).

2. Absorption-costing operating income - Variable-costing operating  income =

Fixed manufacturing costs in ending inventory - Fixed manufacturing costs in beginning inventory

3.        Beginning inventory (in units) + production for the year (in units) - Sales (in units) = Ending inventory (in units)

                        Becomes

            Beginning inventory (in units) + production for the year (in units) = Sales (in units) - Ending inventory (in units)