Chapter 7.4 Types Of Variances

Question 1

What does material price variance include?

Answer 1

All expenses related to the physical raw materials used in manufacturing.

Question 2

Complete the sentence: material variance occurs when;

Answer 2

The actual material costs differ from standard costs.

Question 3

Material price variance has 2 types. Name and explain the 1st component.

Answer 3

Material issue price variance: compares the cost of materials actually used (issued) in production process with standard costs.

Question 4

Material price variance has 2 types. Name and explain the 2nd component.

Answer 4

Material purchase price variance: compares actual cost of purchased materials with standard costs.

Question 5

What is the formula for materials ISSUE price variance?

Answer 5

AQi × (AC - SC)
AC = actual cost / unit
SC = standard cost / unit
AQi = actual quantity issued to production

Question 6

What is the formula for materials PURCHASE price variance?

Answer 6

AQp × (AC - SC)
AC = actual cost / unit
SC = standard cost / unit
AQp = actual quantity purchased

Question 7

When does material QUANTITY/usage variance occur?

Answer 7

When there is a difference between actual qty used vs standard (predetermined) qty required.

Question 8

What’s the formula for material QUANTITY/usage variance?

Answer 8

(AQi - SQ) × SC
AQi = actual qty used in production
SQ = standard qty that should’ve been used
SC = standard cost /unit

Question 9

What two previously mentioned variances combine to make total direct material variance?

Answer 9

Material price variance + material quantity/usage variance = total direct material variance

Question 10

Define total direct material variance.

Answer 10

The difference between actual cost of direct materials used in production and standard cost of direct materials planned for production initially.

Question 11

What are the two main types by which labour variance can be measured?

Answer 11

. Labour rate variance
. Labour efficiency variance

Question 12

What two variances comprise the total labour variance?

Answer 12

Labour rate variance + labour efficiency variance

Question 13

Complete the sentence: the labour rate variance evaluates:

Answer 13

The difference between actual labour cost /hour worked and standard cost /hour

Question 14

What is the formula for labour RATE variance?

Answer 14

(AR - SR) × AT
AR = actual hourly rate paid
SR = standard hourly rate
AT = actual time/hours worked

Question 15

Complete the sentence: the labour efficiency variance evaluates:

Answer 15

The difference between actual hours worked by direct labour and standard hours permitted.

Question 16

What is the formula for labour EFFICIENCY variance?

Answer 16

(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

Question 17

What comprises the total labour variance?

Answer 17

Labour rate variance + labour efficiency variance

Question 18

What two classes can manufacturing overheads be divided into?

Answer 18

Variable manufacturing overheads and fixed manufacturing overheads.

Question 19

Complete the sentence: fixed overhead expense variance evaluates:

Answer 19

the difference between actual fixed costs and standard costs

Question 20

What is the formula for fixed overhead expense variance?

Answer 20

AFO - BFO
AFO = actual fixed overheads
BFO = budgeted fixed overheads

Question 21

Which costing method does not include fixed overhead volume variance?

Answer 21

Marginal costing, because fixed costs are not allocated to production and instead written off as period costs.

Question 22

What is the formula for fixed overhead volume variance?

Answer 22

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)

Question 23

What is the formula for variable overhead expense variance?

Answer 23

AC - (SR x AT)
AC = actual expense on variable overhead costs
AT = actual time worked/nr of hrs worked
SR = standard hrly labour rate

Question 24

What is the formula for variable overhead efficiency variance?

Answer 24

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

Question 25

What is the formula for variable overhead variance?

Answer 25

Actual variable overheads costs - (Standard variable overhead rate x actual production volume)

Question 26

What is the formula for sales price variance?

Answer 26

AV x (ASP - SSP)
AV = actual quantity/volume of units sold
ASP = actual selling price per unit
SSP = standard selling price per unit

Question 27

What is the formula for sales margin volume variance?

Answer 27

SCM x (AV - BV)
SCM = standard contribution margin/unit sold
AV = actual sales volume
BV = budgeted sales volume

Question 28

Complete the sentence: The sales margin represents the profit made on sales and is calculated as:

Answer 28

sales - direct costs

Question 29

What is the formula for standard contribution per unit sold?

Answer 29

Standard selling price
- direct material cost /unit
- labour cost /unit
- variable manufacturing overheads cost /unit

Question 30

True or false: the selling margin volume variance is the difference between the original budget and flexible budget.

Answer 30

True.

Question 31

Complete the sentence: sales variances reveal…

Answer 31

whether actual sales align with budgeted expectations

Question 32

Complete the sentence: expenditure variances help in…

Answer 32

assessing the accuracy of cost projections.