Financial_Planning 1

Question 1

Variance Analysis

Answer 1

Variance analysis involves differences between budgeted (standard or targeted) and actual performance.

• Actual < Standard - Favorable variance
• Actual > Standard - Unfavorable variance

Question 2

Direct Material and Direct Labor Variance

Answer 2

PURE & SAD

• Standard - Actual = Difference
• DM ⇒ Price D^price A^quantity
• DM ⇒ Usage D^quantity S^price
• DL ⇒ Rate D^rateA^{hrs wk}
• DL ⇒ Efficiency D^{hrs wk}S^rate

Question 3

How are Overhead Spending Variances calculated?

Answer 3

• Fixed OH

​FOH Spending V = Actual FOH - Budgeted Fixed OH

• ​Varaible OH

​VOH Spending V = Actual Hrs x ( Actual rate - Standard rate)

Question 4

How are Overhead Efficiency Variances calculated?

Answer 4

​Variable OH efficiency variance = Standard VOH rate x (Standard Hrs - Actual Hrs)

Variable only

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Question 5

Overhead Volume Variance

Answer 5

Overhead volume variance is the difference between the budgeted amount of fixed overhead and fixed overhead applied (based on the fixed overhead rate multiplied by the standard base (DLH)).

Fixed OH V = Budgeted Fixed MOH - Applied Fixed OH

Applied fixed overhead costs = Standard direct-labor hours (DLH) × Fixed overhead rate per DLH

Applied fixed overhead costs equal standard direct-labor hours (or other activity base) allowed for the units manufactured multiplied by the fixed overhead rate per direct-labor hour (or other activity base) used to assign fixed overhead to products

Question 6

Applied overhead

Answer 6

Applied overhead is the amount of overhead cost that has been assigned, using estimates of overhead costs and production levels, to finished goods and included in inventory (which will be expensed as part of cost of goods sold). Overhead applied at the standard or estimated rate does not necessarily equal the actual overhead incurred:

• Over-applied overhead = the excess of applied overhead over actual overhead incurred
• Under-applied overhead = the deficiency of applied overhead; the excess of overhead actually incurred over the amount applied