Page 155 - Finance for Non-Financial Managers

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Finance for Non-Financial Managers
Unit
Nature of the Variance
variance
per unit
1,000 Units Produced variance Factor Amount Amount of
Time—more time was used than the
.3 per unit $25.00 $7.50 $7,500.00
standard
Price—labor rate was higher than the $3 per
1.5 hours $4.50 $4,500.00
standard hour
Total variance accounted for $12,000.00
Figure 8-3. Analysis of cost variances
or finding out if the standard should be increased because it just
takes more time to make these things right. And we can
approach the human resources manager to find out why we
paid more than standard wages for our labor, e.g., we hired
overqualified people, the market has gotten tight for those we
need, or we didn’t do a thorough enough search for workers
within our price range.
This same thought process can be carried out in the analy-
sis of materials variances as well.
Now we have a plan of action and we know the managers
with whom we should talk about carrying out the plan. That’s
what standards can do for a manufacturing company, if the
managers know what a unit costs and if they know what it
should cost. This now becomes a powerful management tool for
controlling the unit cost of the switch, which contributes directly
to the gross profit line on Wonder Widget’s income statement.
And that’s a good thing.

Manager’s Checklist for Chapter 8
❏ Cost accounting is about protecting and growing gross
profit by understanding and managing the details of the
cost of sales, the costs incurred in producing revenue.
❏ Knowing the costs and gross profit margins on each prod-
uct a company sells is a critical tool for managing overall
gross profit. This is true for all kinds of businesses, but it is