Ch# 13 Variance Analysis Flashcards
Formula for Cost of Material Variance?
(SQ-SP) x (AQ-AP)
Formula for Price of Material Variance?
(SP-AP) x AQ
Formula for Usage of Material Variance?
(SQ-AQ) x SP
Usage variance is calculated by?
Usage variance will be calculated by using actual quantity of material used
Price variance is calculated by?
Price variance can be calculated using:
Actual quantity purchased OR
Actual quantity used.
When to use Quantity Purchased?
if Closing stock is valued at Standard Cost
When to use Quantity Consumed?
if Closing stock is valued at Actual Cost
What are the general guidelines for the calculation of price variance?
It is generally recommended to calculate price variance at actual quantity purchased unless specified in question
Indication both Material pruchase and Consumed will be provided
Indication of this question is that in question both Material pruchase and Consumed will be provided
What are the Possible Causes of material Variance?
- Favorable Price variance:
o Different supplies used to offer lower prices.
o Bulk discount availed.
o Lower quality material was purchased. - Adverse Price Variance:
o Different supplies used to offer higher prices.
o Suppliers increase prices.
o Severe shortage of material forcing emergency purchases
o Purchased better quality material. - Favorable usage variance:
o Less wastage than planned due to better quality of materials.
o Improved production methods. - Adverse usage variance:
o More wastage than planned due to poor quality of material.
o Poor material handling.
Journal Entry a. Material Price Variance is calculated using quantity purchased:
Labour Cost Variance without idle time
(SH x SR) – (AH x AR)
Labour Rate Variance without idle time
(SR- AR) x AH
Labour Efficencey Variance without idle time
(SH- AH) x SR
Formula for Cost Variance with Unplanned Ideal time?
(SH X SR) - (AR X AHpaid)
Formula for Rate Variance with Unplanned Ideal time?
(SR - AR) X AHpaid
