Accounting for Control: Variance Analysis Flashcards

1
Q

What is a variance

A

The difference between a planned, standard cost and the ACTUAL cost incurred

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2
Q

When is the variance unfavourable or adverse

A

When actual cost exceeds standard cost

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3
Q

When is variance favourable and caution

A

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

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4
Q

Variance analysis cycle

A
  • 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
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5
Q

Price variance definition

A

Difference between actual price and standard price

Part of materials

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6
Q

Quantity variance example

A

Difference between actual quantity and standard quantity

Part of materials

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7
Q

Price variance formula

A

AQ(AP-SP)

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8
Q

Quantity variance formula

A

SP(AQ-SQ)

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9
Q

What is rate variance

A

comparing what was paid per hour to what we should’ve paid

Part of labour

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10
Q

What is efficiency variance

A

Comparing how many hours we used compared to what we should’ve used

Part of labour

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11
Q

Rate variance formula

A

AH(AR-SR)

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12
Q

Efficiency variance formula

A

SR(AH-SR)

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13
Q

What can rate variance also be called

A

Overhead rate and spending rate variance

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14
Q

How to work out rate variance when variable

A

actual rate = variable OH / actual hours

look at standard rate or quantity in column specifically for variable

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