12.Further variance analysis

Question 1

Which variance is relevant to sales mix and quantity variance

Answer 1

Sales volume variance

Question 2

When can sales volume variance be analysed

Answer 2

• Th ebuesiness sells more than one product
• The proportion of units solf in a mix is changeable and controllable
• The sales volume variance is of limited value because of the variabilityof mix

Question 3

What is meant by salex mis

Answer 3

Sales mix variance occurs when the proportions of the various products solf are different from those in the budget

Question 4

What is sales quantity variance

Answer 4

Shows the difference in contribution/profit due to a change in a sales volume compared to the budgeted sales volume

Question 5

What are the advantages of sales mix and quantity variance

Answer 5

• Allows to identify trends in demand for indivudal products
• Improved responsibility accounting for different managers
• Allows evaluation of marketing campaigns
• Could be used to understand changes in market size

Question 6

What are disadvantages of using sales mix and quantity variance

Answer 6

• Only meaninful if there is a controllable relationship between demand for products or products that can be substitued
• might not be controllable

Question 7

What is planning variance

Answer 7

Comparing orignal standard with revised standard that should have been used if planners knew what was going to happen
- Incorrect standard

Question 8

What is operational variance

Answer 8

An operational variance compares an actual results with revised standard
- Controllable

Question 9

What is meant by ex ante and ex post

Answer 9

Ex ante: original standard
Expost: revised standard

Question 10

What could a total operational variance be caused by

Answer 10

Either
- Adverse/favourable operational performance (operational variance)

• Inaccurate planning (planning variance)

Question 11

What are advantages of planning and operational variance

Answer 11

• Highlights variances which are controllable and are non-controllable
• Manager’s motivation is likely to increase if they know they will not be held responsible for poor planning and faulty standard setting
• The planning and standard- setting prcoesses should improve
• Operational variances iwll provide a fairer reflection of actual performance

Question 12

What are disadvantages of planning and operational variances

Answer 12

• Difficult to deicde in hindsight what the realistic standard should have been
• Regular use of revised budget which undermine orginal budget as a target/motivator
• Employees may use this system to excuse operating porblmes as planning errors