Chapter 7.4 Types Of Variances Flashcards
What does material price variance include?
All expenses related to the physical raw materials used in manufacturing.
Complete the sentence: material variance occurs when;
The actual material costs differ from standard costs.
Material price variance has 2 types. Name and explain the 1st component.
Material issue price variance: compares the cost of materials actually used (issued) in production process with standard costs.
Material price variance has 2 types. Name and explain the 2nd component.
Material purchase price variance: compares actual cost of purchased materials with standard costs.
What is the formula for materials ISSUE price variance?
AQi × (AC - SC)
AC = actual cost / unit
SC = standard cost / unit
AQi = actual quantity issued to production
What is the formula for materials PURCHASE price variance?
AQp × (AC - SC)
AC = actual cost / unit
SC = standard cost / unit
AQp = actual quantity purchased
When does material QUANTITY/usage variance occur?
When there is a difference between actual qty used vs standard (predetermined) qty required.
What’s the formula for material QUANTITY/usage variance?
(AQi - SQ) × SC
AQi = actual qty used in production
SQ = standard qty that should’ve been used
SC = standard cost /unit
What two previously mentioned variances combine to make total direct material variance?
Material price variance + material quantity/usage variance = total direct material variance
Define total direct material variance.
The difference between actual cost of direct materials used in production and standard cost of direct materials planned for production initially.
What are the two main types by which labour variance can be measured?
. Labour rate variance
. Labour efficiency variance
What two variances comprise the total labour variance?
Labour rate variance + labour efficiency variance
Complete the sentence: the labour rate variance evaluates:
The difference between actual labour cost /hour worked and standard cost /hour
What is the formula for labour RATE variance?
(AR - SR) × AT
AR = actual hourly rate paid
SR = standard hourly rate
AT = actual time/hours worked
Complete the sentence: the labour efficiency variance evaluates:
The difference between actual hours worked by direct labour and standard hours permitted.
What is the formula for labour EFFICIENCY variance?
(AT - ST) × SR
AT = actual time worked/nr of hrs
ST = standard time/nr of hrs permitted at actual level of production
SR = standard hourly labour rate
What comprises the total labour variance?
Labour rate variance + labour efficiency variance
What two classes can manufacturing overheads be divided into?
Variable manufacturing overheads and fixed manufacturing overheads.
Complete the sentence: fixed overhead expense variance evaluates:
the difference between actual fixed costs and standard costs
What is the formula for fixed overhead expense variance?
AFO - BFO
AFO = actual fixed overheads
BFO = budgeted fixed overheads
Which costing method does not include fixed overhead volume variance?
Marginal costing, because fixed costs are not allocated to production and instead written off as period costs.
What is the formula for fixed overhead volume variance?
SFOR×(BP−SP)
SFOR: Standard Fixed Overhead Rate (per unit).
BP: Budgeted Production (planned output in units).
SP: Standard Production (output based on actual performance)
What is the formula for variable overhead expense variance?
AC - (SR x AT)
AC = actual expense on variable overhead costs
AT = actual time worked/nr of hrs worked
SR = standard hrly labour rate
What is the formula for variable overhead efficiency variance?
SR x (AT - ST)
AC = actual expense on variable overhead costs
AT = actual time worked/nr of hrs worked
ST = standard time/nr of hrs allowed for actual production level
SR = standard hrly labour rate
What is the formula for variable overhead variance?
Actual variable overheads costs - (Standard variable overhead rate x actual production volume)
What is the formula for sales price variance?
AV x (ASP - SSP)
AV = actual quantity/volume of units sold
ASP = actual selling price per unit
SSP = standard selling price per unit
What is the formula for sales margin volume variance?
SCM x (AV - BV)
SCM = standard contribution margin/unit sold
AV = actual sales volume
BV = budgeted sales volume
Complete the sentence: The sales margin represents the profit made on sales and is calculated as:
sales - direct costs
What is the formula for standard contribution per unit sold?
Standard selling price
- direct material cost /unit
- labour cost /unit
- variable manufacturing overheads cost /unit
True or false: the selling margin volume variance is the difference between the original budget and flexible budget.
True.
Complete the sentence: sales variances reveal…
whether actual sales align with budgeted expectations
Complete the sentence: expenditure variances help in…
assessing the accuracy of cost projections.
