B3-M6 Variance Analysis

Question 1

What is a controllable variance?

Answer 1

A variance from standard that could have been prevented (controlled)

Question 2

What are the types of variances? and how to calculate?

Answer 2

REMEMBER - PU RE SAD DA DS

DM
Price variance = Actual vs. Std price x Actual quantity
Usage Variance = Actual vs. Std Quantity x Std price

DL
Rate variance = Actual vs. std rate x Actual Hours
Efficiency = Actual vs std hours x Std rate

OH -
Variable OH (spending) Variance - Actual vs. Std Rate x actual hours
VOH efficiency variance - Actual vs std hours allowed x Std rate
Fixed OH budget (spending) Variance - actual FOH vs. Budgeted FOH (in dollar amounts)
Fixed OH volume Variance - Budgeted FOH vs Std fixed cost allocated to actual production ( or simply Actual Production x Std application rate)
Overall variance = combine all FOH and VOH variance (actual vs. applied)

Reminder 1: in Fixed overhead, you don’t have a rate, it’s just a “fixed” number.
Reminder 2: Fixed costs are generally held constant over the relevant range

Question 3

How to evaluate Manufacturing variances? Difference between Overapplied OH vs. Underapplied OH

Answer 3

o Favorable = Volume > Anticipated
Unfavorable = Volume < Anticipated
o Favorable = Actual$ < Budgeted$
Overapplied = ↓ COGS/Exp, ↑ Profit
o Unfavorable = Actual$ > Budgeted$
Underapplied = ↑ COGS/Exp, ↓ Profit

Overapplied – meaning budgeted more OH but came up with lesser actual. Results in credit to COGS and reduction in Expenses. favorable variance

Underapplied – meaning you should have budgeted more or applied based on X. cause the actual is actually higher. Unfavorable variance.

Question 4

Explain the PURE SAD DADS nemonic

Answer 4

P = D x A

U = D x S

R = D x A

E = D x S

Price = Difference x Actual

Usage = Difference x Standard

Rate = Difference x Actual

Efficiency = Difference x Standard

and there’s SAD PURE DADS

SAD as in the Standard minus Actual = Difference

Question 5

Sales Variance Analysis

Answer 5

PU ASD DADS
P = DA (SP) ASD
U = DS (Volume)
o Favorable = Actual > Budgeted
o Unfavorable = Actual < Budgeted
[Above evaluation applies to both Actual SP and/or units sold]

Question 6

Sales mix variance - purpose and formula

Answer 6

Considers impact of multiple products on the projected and actual sales volume of an org.

o Favorable = Actual quantity sold > Budgeted
o Unfavorable = Actual quantity sold < Budgeted