Evaluating Performance Within an Organization

1. Evaluating Performance Within an Organization Click to Continue

2. Objectives 1. Calculate and evaluate cost variances for direct materials and direct labor. 2. Explain how variance analysis can enhance managerial decision-making. 3. Identify four types of quality costs and explain how managers use these costs to improve performance. Click to Continue

3. Objectives 4. Describe how variability can affect production costs. 5. Explain how statistical process control provides useful information to managers of both production and administrative functions. 6. Explain application of performance evaluation methods in service organizations. Click to Continue

4. Variances Total Actual Costs Total Standard Costs Total Variance Click to Continue

5. Variances Total Actual Costs Total Standard Costs Actual Quantity x Standard Price Price Variance Quantity Variance Standard Quantity x Standard Price Actual Quantity x Actual Price Total Variance Click to Continue

6. Actual Quantity x Standard Price $125,000 Variances--Materials Total Actual Costs Total Standard Costs Actual Quantity x Actual Price 500,000 pounds x $0.25 = $125,000 Standard Quantity x Standard Price Actual Quantity x Actual Price Total Variance Click to Continue

7. Actual Quantity x Standard Price $138,000 Variances--Materials Total Actual Costs Total Standard Costs Standard Quantity x Standard Price 460,000 pounds x $0.30 = $138,000 $125,000 Standard Quantity x Standard Price Actual Quantity x Actual Price Total Variance Click to Continue

8. Actual Quantity x Standard Price Variances--Materials Total Actual Costs Total Standard Costs Total Material Variance $138,000 $125,000 Standard Quantity x Standard Price Actual Quantity x Actual Price Total Variance $13,000 Favorable Click to Continue

9. Actual Quantity x Standard Price $150,000 Variances--Materials Total Actual Costs Actual Quantity x Standard Price 500,000 pounds x $0.30 = $150,000 Total Standard Costs $138,000 $125,000 Standard Quantity x Standard Price Actual Quantity x Actual Price Total Variance Click to Continue

10. Actual Quantity x Standard Price Variances--Materials Total Actual Costs Total Standard Costs $150,000 $138,000 $125,000 Standard Quantity x Standard Price Actual Quantity x Actual Price Total Variance Click to Continue

11. Variances--Materials AQ x AP AQ x SP Material Price Variance $125,000 $150,000 $25,000 Favorable Click to Continue

12. Variances--Materials AQ x SP SQ x SP Material Quantity Variance $150,000 $138,000 $12,000 Unfavorable Click to Continue

13. $153,700 Variances--Labor Total Actual Costs Total Standard Costs Actual Hours x Actual Rate 5,300 hours x $29 = $153,700 Actual Hours x Standard Rate Standard Hours x Standard Rate Actual Hours x Actual Rate Total Labor Variance Click to Continue

14. $110,400 Variances--Labor Total Actual Costs Total Standard Costs Standard Hours x Standard Rate 4,600 hours x $24 = $110,400 Actual Hours x Standard Rate $153,700 Standard Hours x Standard Rate Actual Hours x Actual Rate Total Labor Variance Click to Continue

15. Variances--Labor Total Actual Costs Total Standard Costs Total Labor Variance Actual Hours x Standard Rate $110,400 $153,700 Standard Hours x Standard Rate Actual Hours x Actual Rate Total Labor Variance $43,300 Unfavorable Click to Continue

16. Variances--Labor Total Actual Costs Total Standard Costs Actual Hours x Standard Rate $110,400 $153,700 Standard Hours x Standard Rate Actual Hours x Actual Rate Total Labor Variance Click to Continue

17. Variances--Labor AH x AR AH x SR Labor Rate Variance 5,300 x $24 $153,700 $127,200 $26,600 Unfavorable Click to Continue

18. Variances--Labor AH x SR SH x SR Labor Efficiency Variance $127,200 $110,400 $16,800 Unfavorable Click to Continue

19. Quality Cost Concepts Prevention costs are costs incurred to preventthe production of poor-quality unitsor poor-quality services. Appraisal costs are costsincurred to identifypoor-quality products before customer receives the goodsor services. Failure costs are costsincurred because poor quality exists. Click to Continue

20. Taguchi Quality Loss Function Traditional Cost Function $ Loss Lower Specification Limit Upper Specification Limit No loss incurred Loss incurred Loss incurred Specification Limit Click to Continue

21. Taguchi Quality Loss Function Taguchi Cost Function $ Loss Quality loss curve Lower Specification Limit Upper Specification Limit Target Value Specification Limit Click to Continue

22. Statistical Process Control Statistical process control charts usually include-- (a) a center line, representing the expected value of a characteristic; (b) a line above and another below the expected value, indicating the limits within which a characteristic is considered to be in control; (c) a horizontal axis, indicating the time order of observations of the characteristics; and, (d) a vertical axis, measuring the values of observations. Click to Continue

23. - - - - - - - - - - - - - - - - Upper Control Limit = 109 Process Average = 77.5 Lower Control Limit = 47.2 115 110 105 l00 95 90 85 80 75 70 65 60 55 50 45 40 35 Flow Volume (per Second) | | | | | | | | | | | | | 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Observations Click to Continue

24. In Review Information in Slide Presentation included: 1. Materials, Price & Quantity Variances 2. Labor Rate & Efficiency Variances 3. Quality Cost Functions 4. Statistical Quality Control Techniques Click to Continue

25. THE END