Chapter 14 - Advanced Variance Analysis Flashcards
What are planning and operational variances
Planning variances are the classification of variance is calculated by comparing the original budget to the budget revise for any permanent changes to be more realistic budget
Operational variances is a classification of variances calculate by comparing actual performance with revised budget these variances are worth investigating more as they are parents is caused by operating factors that potentially might be controllable
Planning an operational variances in essence takes the variance analysis already done and tries to separate it to what are permanent changes (planning variance) such as supplier increasing cost of raw materials versus operational variances which are attributed to decisions made within the company for example buying cheaper materials
How to use planning an operational variances in a question
It is pretty simple. Take expenditure variance let’s say originally we expected $5 per kilo And we actually spent $4.75 per kilo on 108,000 kg. If this is all the question states then you can see that we are favourable by $.25 per kilo however the question says since the preparation of the budget the prices change to $4.85.
Therefore to work out the planning variance (permanent changes) saving Of $.15 per kilo are due to changes in the price ($5 to $4.85) therefore 108,000 x .15 = £16,200 of the overall 27,000 favourability is accounted for with planning
Operational variance (how good or bad the manager is at his job) in this occasion is $.10 because we paid $4.75 and we should’ve paid $4.85 therefore the variance for operational is $10,800.
As you can see here we have split out the original 20,000 favourability and see what is market trends and what is efficiency within the company in terms of buying things
What are mix and yield variances
Mix variance-this shows the effect of changing the proportions of the mix of materials input into the process for example if we are making a smoothie if we use less strawberry then we need to use more banana to ensure that the total Litre is the same
Yield variance – This shows the difference between the actual unexpected output or yield from the process (for example lost materials due to evaporation) 
How to calculate the mix variance
Create a table that shows both products with the materials unit price and total. This is how much we actually spent on the mix and then look at how Much materials we actually Spence and workouts what the ratio should’ve been for example if the total materials used was 3000 and material x used 2 kg and material y used 1 kg then we would expect material x to be 2000
How to work out the yield variance
This variance is in regards to things such as evaporation so we need to look at the total units used and the total cost versus the actual production time is the standard cost. For example if both X and y used 15200kg but production was 5000 (x used 2 kg and y uses 1 kg) then we know it should have been 15000 in total so overused by 200kg @ std cost
How to workout the usage variance for mix And yield
Add the mix variance and yield variance together to give the usage variance
What are some other mix variances
 Sales price variance
Sales volume variance
Sales mix variance
Sales price variance
Take the actual sales and the actual price per unit and take the actual sales on the porch is the price per unit and see the difference
How to work out the sales Mix variance
Let’s say we have three products A and B and actual sales were 180 for A, and 120 for B however we were expecting the sales mix to be 100 of A and 50 of B so we know that 2/3 should have been A. Add together the sales = 300 and find 2/3 to get 200 the difference of 100 @ std cost is the mix variance
Sales volume variance
Actual sales standard profits versus budget sales at standard profits
What is the quantity variance
Actual total unit at standard price vs budget total units at standard price
How do these new sales variances tie in to chapter 13
Remember in the last chapter the sales variance is either sales price or sales volume. Sales volume can be split into sales mix and quantity variance because if you think about it the total sales that we make versus budget would differ because either the quantity was difference e.g. we sell more which is the quantity variance for the mixture of sales is difference which is the sales mix variance. For example if we budgeted to sell 100 units of product a for $6 and 100 units product b for $1 but we actually sold 150 of product a and 50 of product b though the totals are the same the mix is different
How to work out the sales volume variance without any information
The sales volume as it is split into the sales mix and sales quantity variance if you add these variances together it will give you the volume variance
