11 - Variance analysis

Question 1

budgeted contribution formula

Answer 1

standard contribution per unit x budget units

Question 2

budgeted contribution from actual sales formula

Answer 2

budgeted contribution - sales volume variance

Question 3

actual sales minus the standard variable cost of sales to get cost variances
FORMULA

Answer 3

budgeted contribution from actual sales +/- the sales price variance

Question 4

actual contribution formula

Answer 4

budgeted contribution +/-
sales volume variance +/-
= budgeted contribution from actual sales +/-
sales price variance +/-
= cost variances (actual sales minus standard variable cost of sales)

then take all other cost variances to and total them by F or A to get a total figure that is either F or A

+/- this figure from the cost variances above to get actual contribution

Question 5

CAUSEs of variances

Answer 5

C ontrollable - excessive expenditure
A ccuracy - inaccuracy
U ncontrollable - excessive expenditure
S tandard type - eg, unrealistic
E xpectations

Question 6

causes of f/a material price variance

Answer 6

F:
- discounts
- change in material standard
- more care in purchasing

A:
- price increase
- careless purchasing
- change in material standard

Question 7

causes of f/a material usage variance

Answer 7

F:
- higher quality material
- more effective use of material
- errors in allocating material to jobs

A:
- defective material
- excessive waste
- theft
- stricter quality control
- errors in allocating material to jobs

Question 8

causes of f/a labour rate variance

Answer 8

F:
- lower rate of pay workers

A:
- wage rate increase
- use of higher grade labour

Question 9

causes of f/a idle time variance

Answer 9

F:
- if idle time is less than budget

A:
- machine breakdown
- non availability of material
- illness or injury to worker

Question 10

causes of f/a labour efficiency variance

Answer 10

F:
- output produced quicker than expected because of motivation, better quality or better methods
- training

A:
- lost time in excess of standard allowed
- output lower than standard
- lack of training or substandard material

Question 11

causes of f/a variable overhead expenditure variance

Answer 11

F:
- change in types of overhead or their cost (spent less)

A:
- change in types of overhead or their cost (spent more)

Question 12

examples of interdependent variances

Answer 12

• materials price and usage = cheaper materials, F price variance but A usage variance
• labour rate and efficiency = highly experienced staff, F labour efficiency but A labour rate
• sales price and sales volume = reducing the price, A sales price variance but F sales volume variance

Question 13

which variances do we include in the actual contribution workings

Answer 13

all except FIXED