Chapter 5: Variance Analysis Flashcards
What is a variance?
Difference between actual results and the budget or standard
How do you calculate sales price variance?
Actual quantity sold x Actual Price (AQAP)
Actual quantity sold x Standard Price (AQSP)
How do you calculate sales volume variance?
Actual quantity sold x standard margin (AQSM)
Budget Quantity sold x Standard Margin (BQSM)
What causes a sales price variance?
Higher than expected discounts offered to customers to persuade them to buy, or due to purchasing in bulk
Lower than expected discounts, perhaps due to strength of sales demand
Effect of low price offers during a marketing campaign
Market conditions forcing an industrywide price changes
Changes to product quality or design
What causes a sales volume variance?
Successful or unsuccessful direct selling efforts
Successful or unsuccessful marketing efforts
Unexpected changes in customer needs and buying habits
Failure to satisfy demand due to production difficulties
Higher demand due to a cut in selling prices, or lower demand due to an increase in sales price
Changes to the level or nature of competition
Changes to product quality or design
How to calculate material price variance?
Actual quantity paid x Actual price (AQp AP)
Actual quantity paid x Standard Price (AQp SP)
How to calculate closing inventory of material?
Actual quantity paid x Standard Price (AQp SP)
Actual quantity used x Standard Price
(AQu SP)
How to calculate material usage variance?
Actual quantity used x Standard Price
(AQu SP)
Standard Quantity x Standard Price (SQ SP)
What are the causes of a material price variance?
Using a different supplier
Changes to volume leading to achieving/losing bulk discounts
An unexpected increase in the prices charged by a supplier
Market shortage of materials
Unexpected buying costs, such as high delivery costs
Efficient or inefficient buying procedures
A change in material quantity, resulting in either higher or lower purchase prices
What are the causes of a materials usage variance?
Change to the rate of scrap or wastage
Using a different quality of material could affect wastage rate
Defective materials
Better/worse quality control
More/less efficient work procedures
Changes to production methods or product design
How to calculate labour rate variance?
Actual hours paid x Actual rate (AHp AR)
Actual hours paid x Standard rate (AHp SR)
How to calculate labour idle time?
Actual hours paid x Standard rate (AHp SR)
Actual hours worked x Standard rate (AHw SR)
How to calculate labour efficiency variance?
Actual hours worked x Standard rate (AHw SR)
Standard Hours x Standard Rate (SH SR)
How do you calculate idle time variance?
(Actual Hours paid - Actual Hours worked) x Standard Rate
This is always adverse
What causes a labour rate variance?
Unexpected increase in basic rate of pay
Payments of bonuses
Changes to labour mix resulting in using labour that is more or less experienced that the ‘standard’
Labour shortages