Accounting for Control: Variance Analysis Flashcards
What is a variance
The difference between a planned, standard cost and the ACTUAL cost incurred
When is the variance unfavourable or adverse
When actual cost exceeds standard cost
When is variance favourable and caution
when actual cost is less than standard cost
caution: could be due to lower quality so may not be so favourable e.g.: doesnt cut right so need to use more of it
Variance analysis cycle
- Prepare cost performance report
- Analyse variance (what shouldve happened and why did it not)
- Identify questions
- Receive explanations
- Take corrective actions such as changing suppliers or materials
- Conducts next periods operations
Price variance definition
Difference between actual price and standard price
Part of materials
Quantity variance example
Difference between actual quantity and standard quantity
Part of materials
Price variance formula
AQ(AP-SP)
Quantity variance formula
SP(AQ-SQ)
What is rate variance
comparing what was paid per hour to what we should’ve paid
Part of labour
What is efficiency variance
Comparing how many hours we used compared to what we should’ve used
Part of labour
Rate variance formula
AH(AR-SR)
Efficiency variance formula
SR(AH-SR)
What can rate variance also be called
Overhead rate and spending rate variance
How to work out rate variance when variable
actual rate = variable OH / actual hours
look at standard rate or quantity in column specifically for variable