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
Formula for Productive Efficiency Variance with Unplanned Ideal time?
(SH - AH worked) X SR
Formula for Ideal Variance with Unplanned Ideal time?
(AHpaid - AHworked) X SR
Formula for Cost Variance with planned Ideal time?
(SH X SR) - (AHpaid X AR)
Formula for Rate Variance with planned Ideal time?
(SR - AR) X AHpaid
Formula for Productive Efficiency Variance with planned Ideal time?
(SWH - AHworked) X SR
Formula for Excess ideal time Variance with planned Ideal time?
(SIT - AIT) X SR
How to calculate SH in planned ideal time?
It includes Ideal time in the calculation so Standard Hours/Efficiency x Total Efficiency x Actual Units
How to calculate SWH?
SWH does not include Ideal time so Standard Hours Rate x Actual Units
How to calculate SIT?
Standard Rate Per Hours/Efficiency x Ideal time % x Actual units
How to calculate AR?
Actual Wages paid/ Actual hours paid
Favourable Rate Variance Labour Causes?
-Using Inexperienced labour
-Increments given were less than budgeted
Adverse Rate Variance Labour Causes?
-Unexpected high raise was given (forced by government)
-Overtime was paid at higher rate
-More skilled workers were hired
Favourable efficiency Variance Labour Causes?
-Efficient method were adopted
-Motivated team worked efficiently
-More experienced worker were hired
-Incentives were offered for favourable Variance
Adverse efficiency Variance Labour Causes?
-Less experienced workers were hired
-An event caused low worker morale (low pay rise)
