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CIMA P1 - Management accounting > Chapter 6 - Further variance analysis > Flashcards

Chapter 6 - Further variance analysis Flashcards

1
Q

What is the standard mix?

A

Compares changes in proportion of sales made up by each product, determine actual sales

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2
Q

What is actual total sales in units?

A

Split between products based on originally planned proportions

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3
Q

How are the mix and quantity variances valued?

A

Using standard margin:
- MC costing is standard contribution
- AC is standard profit

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4
Q

What are the 2 ways valuation can be done?

A
  • Individual units method
  • Weighted average contribution method
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5
Q

What is the individual units method?

A

Each product’s variance multiplied by standard margin

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6
Q

What are the steps of the weighted average contribution method?

A
  1. Calc weighted average contribution for products
  2. Deduct from standard contribution per unit for each product
  3. Difference = ans, shows diff between contribution generated and average contribution
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7
Q

How is the weighted average contribution calculated?

A

Total budgeted contribution/total budgeted sales

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8
Q

How is total budgeted contribution calculated?

A

Budgeted sales x contribution

For all products

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9
Q

What does a positive difference mean?

A

Product generates an above average contribution

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10
Q

What does a negative difference mean?

A

Product generates a below average contribution

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11
Q

Which method is superior?

A

Weighted average method:
- provides better variances for control purposes
- easier to see impact

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12
Q

What does the sales quantity variance do?

A

Ignores change in mix and focusses on impact of profit from selling more/less than budgeted

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13
Q

How is sales quantity variance calculated?

A

weighted average margin (actual sales quantity - budgeted sales quantity)

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14
Q

What are the benefits of mix and quantity variances?

A
  • Identification of trends
  • Indicate changes in market size
  • Future sales strategies
  • Gauge effect of marketing campaigns
  • Responsibility accounting improved
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15
Q

What are the problems of mix and quantity variances?

A
  • Controllability needs considering
  • Considered as whole
  • Sales mix variance only relevant if products are related
  • Techniques difficult to apply
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16
Q

How is total variance split?

A
  • Planning
  • Operational
17
Q

What are planning variances?

A
  • Compares revised budget and original
  • Deemed to be uncontrollable
  • Management should not be held accountable
18
Q

When is a planning variance favourable?

A

Revised standard cost < original standard cost

19
Q

When is a planning variance adverse?

A

Revised standard cost > original standard cost

20
Q

Why are planning variances uncontrollable?

A

Original standard was not reflective of attainable standard

21
Q

What are operational variances?

A
  • Compares actual results with revised budget
  • Deemed controllable
  • Management held responsible
22
Q

What are some good reasons for a change in the original standard cost?

A
  • Change in main material
  • Unexpected increase in material price
  • Change in working methods
  • Unexpected change in pay rate
23
Q

What are the benefits of planning variances?

A
  • Useful
  • Up to date
  • Better for motivation
  • Assesses planning
24
Q

What are the negatives of planning variances?

A
  • Subjective
  • Time consuming
  • Can be manipulated
  • Can cause conflict
25
Q

What are the benefits of planning and operational variances?

A
  • More useful in volatile/changing environments
  • Operational variances provide up to date info
  • Operational variances have positive effect on motivation
  • Emphasises importance of planning function
26
Q

What are the negatives of planning and operational variances?

A
  • Subjectivity
  • Large amount of labour time
  • Temptation to use uncontrollable factors as excuses
  • Conflicts between planning and operational staff
27
Q

What is a good way of testing whether operating variances are understood?

A

Work backwards

CIMA P1 - Management accounting (13 decks)

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