Ch4 Variance Analysis

Question 1

Variance analysis

Answer 1

the process of comparing actual performance against a budget or other relevant standard, investigating significant differences, and recommending corrective actions or other improvements

used a s a means for assessing both effectiveness and efficiency

Question 2

variance analysis steps

Answer 2

Step 1: understand objective

Step 2: focus on significant variances for investigation
- small variances may consist of two large offsetting effects
- cost/benefti
- frequency
- ability to control
- nature of item

Step 3: identify favorable / unfavorable (not alwawys good)
factors-most significant implications-possible reasons-brainstorming about possible reasons

Sept 4: appropriate and useful conclusions

Question 3

Types of budget variances

Answer 3

1. Static budget variances (actual - static budget)
   - good for investigating sales revenue and fixed costs
   (AQXAP) - (SQXSP)
2. Flexible budget variances (actual - flexble budget
   - good for investigating control of variable costs
   - also for impact of sales or production volume on CM
   - different price at same quantity
   (AP-SP)XAQ
3. Sales volume variance (flexible budget - static budget)
   - same price for different units
   (AQ-SQ)XSP

Flexible variance + sales volume variance = static variance

Question 4

two detailed variances of flexible variance

Answer 4

1. rate variance
   (AP - SP) x AQ
2. efficiency variance
   (AQ - SQ) x SP
3. efficiency variance

Question 5

Sales volume variance / CM variances

Answer 5

Sales volume variance: (AQ-SQ)x SP

1. Sales mix variance (in CM)
2. Sales quantity variance ( in CM)

Question 6

Fixed overhead variances

Answer 6

1. Compare actual costs to static budget
2. For standard costing system, when fixed costs are combined into a single cost pool, distinguish between actual cost variances and artifical variances due to costing system