C-variance analysis

Question 1

1. sales price variance

Answer 1

the variance is calculated by multiplying the actual number of units sold by the difference between the standard selling price and the actual selling price.

Question 2

1. adverse sales price variance

Answer 2

-a promotion being sokd at below list price. the likely effect of this promotion is that a higher volume were sokd than expected.
-the sales teams negotiating with new customers and offering discounts.
-discounting that have been affected by the competitor company opening nearby gyms.
the sales price variance cannot be used to assess the performance of the sales team beacuse they do not have the authority to change the sales price.

Question 3

3. sales quantity variance

Answer 3

sales profit quantiy variance calculates the effect on profit of selling a different total quantity, in standard mix, to the budget.
the variance is calculated by multiplying the standard weighted average profit by the difference between actual sales and budgeted sales.

Question 4

4. why sales quantity variance is useful?

Answer 4

sales quantity is the basis of the sales team`s bonus and as sales quantity is the one aspect that members of the team have some control over, it is a reasonable basic performance measure.
-promotion
-production department
-the actions of a competitor
the sales quantity variance can also indicate changes in the market size or share of an organisation.

Question 5

5. sales mix variance

Answer 5

sales profit mix variance calculates the effect on profit of the actual sales volumes of the different products being sold in a different proportion to the budgeted proportion.
for each product the difference between the actual quantity sokd and the budgeted mix for the actual quantity sold is multiplied by the standard profit.

Question 6

6. favourable sales mix variance

Answer 6

1. sold more of the two products with the highest standard profit and less of the product with the lowest standard profit
2. sold proportionately more to the customers with the higher profit margins and proportionately less to the customers with the lower pforfit margin.
3. the sales team can improve this variance by selling more of the more profitable products.
4. sales mix variance is only relevant if the products are complementary or can be substituted for each other. but in practice, it may also be very hard for the business to determine which products are complementary and which are substitutes

Question 7

7. material proce variance

Answer 7

this is the difference between the standard and actual cost per unit of the direct materials purchased, multiplied by the standard number of units expected to be used in the production process. this variance is the reponsibility of the purchasing department.

Question 8

8. material quantity variance

Answer 8

this is the difference between the standard and actual number of units used in the production process, multiplied by the standard cost per unit. this variance is the reponsibility of the production department.

Question 9

9. possible causes of unfavourable materials price variance

Answer 9

1. high demand for materials caused a supplier to raise prices.
2. ths shutdown of a key supplier caused materials shortages and higher prices.
3. the purchasing agent was ineffective in negotiaing the lowest price.
4. higher-quality materials were purchased at a higher price.

Question 10

10. possible causes of favourable materials quantity variance

Answer 10

1. higher-quality materials reduced waste and spoilage
2. an employee training program improved the efficient use of materials.
3. new production techniques promoted more efficient use of materials.
4. improved maintenance of production equipment reduced waste of matrerials.

Question 11

11. labor rate variances

Answer 11

the labor rate variances show whether the rate of pay is higher or lower than that budgeted for each grade of labour.

Question 12

12. labor efficiency variance

Answer 12

the labor efficiency variance is the difference between the actual number of direct labor hours worked and budgeted direct labor hours that should have been worked based on the standard.

Question 13

13. unfavorable labor rate variance

Answer 13

1. higher mix of skilled workers caused hourly rates to be higher than expected
2. an unexpected increase in demand caused the direct labor workforce to work overtime, requiring the company to pay overtime wages.
3. a new labor contract increased wages for the direct labor workforce

Question 14

14. favorable labor efficiency variance

Answer 14

1. a higher mix of skilled worker made more efficient use of labor hours
2. an employee training program improved the efficient use of time.
3. new production techiques promoted more efficient use of time.
4. high-quality materials resulted in less time spent working with materials waste.

Question 15

15. idle time variance

Answer 15

the difference between the expected productive hours and paid hours.
this variance would represent the time the workers were paid but were unable to be productive.
it would be helpful to identify the amount of idle time incurred.
-disruption of production activities due to mechanical failures;
-lack of purchase orders especially in case of seasonal businesses;
-industrial disputes

Question 16

16. idle time variance

Answer 16

will managers will be responsible for the idle time variances?
this depends on the cause of the idle time.
-it may be caused by a lack of sales orders(sales management responsibility)
-inefficient production management (production mangement responsibility)
-or delays in deliveries of key raw material(buying manager responsibility)

Question 17

17. variable overhead efficiency variance

Answer 17

variable overhead efficiency variance is calculated to quantify the effect of a change in manufacturing efficiency on variable production overheads.
variable overhead efficiency variance is the measure of impact on the standard variable overheads due to the difference between standard number of manufacturing hours and the actual hours worked during the period.

Question 18

18. favourable variable overhead efficiency variance

Answer 18

favorable variable overhead effciency variance indicates that fewer manufacturing hours were expended during the period than the standard hours required for the level of actual output.

Question 19

19. adverse variable overhead efficiency variance

Answer 19

an adverse variable overhead efficiency variance suggests that more manufacturing hours were expended during the period than the standard hours required for the level of actual production

Question 20

20. variable overhead efficiency variance

Answer 20

1. favourable variance:
   - good quality materials
   - good quality labour
   - this would result in fewer hours in production process.
2. adverse variance
   - low quality materials
   - low quality labour
   - this would result in more hours in production process

Question 21

21. variable overhead expenditure variance

Answer 21

1. variable overhead expenditure variance is the difference between variable production overhead expense incurred during a period and the standard variable overhead expenditure.
2. variable overhead expenditure variance is essentially the difference between what the variable production overheads didi cost and what they should have cost given the level of activity during a period.
   - favourable variable manufucturing overhead spending variance indicates that the company incurred a lower expense than the standard cost.
   - an advers variable manufactuing overhead spending variance suggests that the company incurred a higher cost than the standard expense.

Question 22

22. favourable variable overhead expenditure variance

Answer 22

1. economies of scale (eg. increase in order size of indirect material leading to bulk discounts on purchase)
2. a decrease in the general price level of indirect supplies
3. more efficient cost control (eg. optimising electricity consumption through the installation of energy efficient equipment)
4. planning error (eg. failing to take into account the learning curve effect)

Question 23

23. adverse variance of variable overhead expenditure variance

Answer 23

1. arise in the national minimum wage rate leading to a higher cost of indirect labour;
2. inefficient cost control (eg. not optimising the batch production quantities leading to higher set up costs)
3. planning error (eg. failing to take into account the increase in unit raes of electricity applicable for the level of activity budgeted during a period)

Question 24

24. fixed overhead variance

Answer 24

1. fixed overhead total variance is the difference between fixed overhead incurred and fixed overhead absorbed . in other words, it is the under- or over-absorbed fixed overhead.
2. fixed overhead expenditure variance is the difference between the budgeted fixed overhead expenditure and actual fixed overhead expenditure.
3. fixed overhead volume variance is the difference between actual and budgeted (planned )volume multiplied by the standard absorption rate per unit.

Question 25

25. fixed overhead efficiency variance

Answer 25

fixed overhead efficiency variance compare the actual hours used with standards hours for actual production. this difference in hours is then valued at the fixed production overhead absorption rate.

Question 26

26. fixed overhead capacity variance

Answer 26

fixed overhead capacity variance is the difference between budgeted (planned) hours of work and the acutal hours worked, multiplied by the standard absorption rate per hour.
the variance is favourable which means that we have increased our capacity.

Question 27

27. planning variances

Answer 27

planning variances:the responsibility of the senior team

• errors or changes in planning assumptions which arise from our inability to make exact predictions in advance
• change in market conditions relating to price may be considered to be out of the control of operational management and therefore due to planning.
• changes in assumptions in price would also create changes in assumptions on volume.

Question 28

28. operational variances

Answer 28

operational variances : the responsibility to operational management.
considered to be entirely within the control of our operational managers

Question 29

29. planning and operating variances

Answer 29

1. improve motivation as staff will only be judged against variances which are within their control.
2. managers are likely to be judged against more realistic standards, resulting in fewer significant variances and less time investigation these variances.
3. operational teams will also not waste time investigating planning differences, which is of no benefit to them given that they are not held responsible for these items.
4. may cause conflict between planning and operational staff where there is some disagreement about whether the standard is correct.