9 Variance Analysis

Question 1

What are the three main price variances?

Answer 1

1. Total variance
2. Price variance
3. Usage variance

Question 2

What do you have to be able to calculate variances for?

Answer 2

a) Materials
b) Labour
c) Variable overhead
d) Sales

Question 3

What could we interpret from the sales variance?

Answer 3

If we sold more items than expected could be due to a lower price - attract better volumes, but could => adverse price variance

Question 4

What could we interpret from materials variance?

Answer 4

materials obtained at lower price than expected => lower quality and this => usage variance adverse as greater wastage levels with lower quality materials

Question 5

What could we interpret from the labour variance?

Answer 5

Employing higher quality staff than budgeted => improved efficiency of the labour as shown by favourable efficiency variance