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CIMA P1 - Management accounting > Chapter 5 - Variance analysis > Flashcards

Chapter 5 - Variance analysis Flashcards

1
Q

What are the 4 types of standard?

A
  • Attainable
  • Basic
  • Current
  • Ideal
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2
Q

What is a variance?

A

Difference between actual and budget

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3
Q

What are the 3 main groups of variances?

A
  • Sales
  • Variable cost
  • Fixed overhead
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4
Q

What are sales variances?

A

Differences between:
- Actual and standard sales prices
- Budgeted and actual sales volume

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5
Q

How is a sales price variance calculated?

A

(actual selling price x actual units sold) - (standard selling price x actual units sold)

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6
Q

How is sales volume variance calculated?

A

Actual - budgeted

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7
Q

What are the different ways variance in units can be valued?

A
  • Standard profit per unit
  • Standard contribution per unit
  • Standard revenue per unit
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8
Q

How can sales price cause sales variances?

A
  • Higher than expected discounts (adverse)
  • Lower than expected discounts (favourable)
  • Low price offers (adverse)
  • Industry wide price change (adverse/favourable)
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9
Q

How can sales volume cause sales variances?

A
  • Direct selling efforts (adverse/favourable)
  • Marketing efforts (adverse/favourable)
  • Changes in customer needs (adverse/favourable)
  • Failure to satisfy demand (adverse)
  • Changes demand (adverse)
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10
Q

How is direct material total variance calculated?

A

Actual direct material cost - standard direct material cost of actual production

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11
Q

What 2 sub variances can total material variance be split into?

A
  • Direct material price variance
  • Direct material usage variance
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12
Q

What is a total direct material variance?

A

Difference between standard material cost of output and material cost incurred

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13
Q

How is direct material price variance calculated?

A

Actual purchase price - standard purchase price per kg x (actual quantity of material purchased/used)

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14
Q

How is price variance calculated when raw material inventory is valued at standard cost?

A
  • Calc based on material purchased
  • Inventory carried forward valued at standard cost
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15
Q

How is price variance calculated when raw material inventory is valued at actual cost?

A
  • Calc based on material used
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16
Q

How is direct material usage variance calculated?

A

Actual quantity used - (standard quantity of material specified for actual production x standard purchase price)

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17
Q

How can material price cause material variances?

A
  • Use of different supplier (adverse/favourable)
  • Bulk purchase (favourable)
  • Small orders (adverse)
  • Supplier price increase (adverse)
  • Unexpected buying costs (adverse)
  • Buying procedures (adverse/favourable)
  • Change in material quality (adverse/favourable)
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18
Q

How can material useage cause material variances?

A
  • Scrap rate (a/f)
  • material quality (a/f)
  • Defective materials (a)
  • better quality control (f)
  • More efficient work procedures (f)
  • Changing labour mix (a/f)
  • Changing materials mix (a/f)
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19
Q

How is the direct labour total variance calculated?

A

Actual cost of direct labour - standard direct labour cost of actual production

20
Q

What does the total direct labour variance indicate?

A

Difference between standard direct labour cost of the output which has been produced and the actual direct labour cost incurred

21
Q

What does the direct labour rate variance indicate?

A

Actual cost of any change from the standard labour rate of remuneration

22
Q

What is the direct labour efficiency variance defined as?

A

Standard labour cost of any change from the standard level of labour efficiency

23
Q

How is the direct labour rate variance calculated?

A

Actual rate per hour - (standard rate per hour x actual hours paid for)

24
Q

How is the direct labour efficiency variance calculated?

A

Actual hrs worked - (standard hrs specified for actual production x standard hr rate)

25
Q

What should the efficiency variance be split into when idle time occurs?

A
  • Idle time variance
  • Efficiency variance during active work hours
26
Q

If there is no standard idle time in the budget, what is the idle time variance?

A

Always adverse

27
Q

When does the direct labour idle time variance occur?

A

When hour paid exceeds hours worked and there is an extra cost caused by idle time

28
Q

How can changes in labour rate affect labour variances?

A
  • Increase in pay (a)
  • Payment of bonusses (a)
  • Variance with standard cost (a/f)
  • Change in average rates of pay (a/f)
29
Q

How can changes in labour efficiency affect labour variances?

A
  • More/less time then expected to complete work (a/f)
  • Labour more/less experienced than standard (a/f)
  • Change in composition of workforce (a/f)
  • Improved working methods (f)
30
Q

How is a variable production overhead total variance calculated?

A

Actual cost of variable production overheads - (standard variable overhead cost of actual production)

31
Q

How can a total variable production overhead variance be analysed further?

A
  • Variable production overhead expenditure variance
  • variable production overhead efficiency variance
32
Q

What does a variable production overhead expenditure variance indicate?

A

Actual cost of any change from the standard rate per hour

33
Q

What is the variable production overhead efficiency variance?

A

Standard variable overhead cost of any change from the standard level of efficiency

34
Q

When there is idle time, what is the variable production overhead expenditure variance?

A

Standard variable overhead cost of the active hours worked - actual variable overhead cost

35
Q

How is the total cost variance calculated?

A

Actual fixed production overheads incurred - standard fixed production overhead cost absorbed by the actual production

36
Q

How is fixed production overhead expenditure variance calculated?

A

Actual fixed production overhead - budgeted fixed production overhead

37
Q

How is fixed production overhead volume variance calculated?

A

Actual output in units - budgeted output in units x FOAR per unit

38
Q

Does the fixed overhead volume variance occur in MC?

A

No

39
Q

If FOH is absorbed based on hours, how can the FOH volume variance be subdivided?

A
  • Capacity variance
  • Efficiency variance
40
Q

What are the potential causes of fixed and variable overhead variances?

A
  • FOH expenditure adverse variances caused by spending over budget
  • FOH volume variance caused by changes in production volume
  • Variable production overhead expenditure variances caused by changes in machine running costs
41
Q

When should variances be reported to management?

A

End of each control period

42
Q

What concept should be followed when reporting variances?

A

Responsibility accounting, variances reported to individual managers

43
Q

What is the formula for standard contribution?

A

Contribution to sales ratio x unit price

44
Q

How is the sales volume contribution calculated?

A

Sales volume variance in units x standard contribution per unit

45
Q

What is the formula for the fixed overhead volume variance?

A

(budgeted - actual production volume) x standard absorption rate per unit

46
Q

What can explain an adverse material usage variance?

A
  • Lower quality materials purchased
  • Less experienced employees
47
Q

What variances would be impacted by a switch from AC to MC?

A
  • Sales quantity profit variance
  • Fixed overhead capacity variance

CIMA P1 - Management accounting (14 decks)

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