MA 4 Budgeting - Variance Analysis Flashcards
What two things are variances used to assess? Define them.
Efficiency - doing things with lease amount of effort or waste
Effectiveness - doing things in a way that meets the objectives
4 steps for variance analysis
- Understand the objective
- Decide which variances are worth investigating. Cost/benefit, frequency, ability to control, nature of item
- Investigate the why
- Recommend response
Static budget variance formula and significane
AQ x AP - SQ x SP
where AQ = actual quantity
AP = actual price
SQ = standard or budgeted quantity SP = standard or budgeted price
determines that variances exist but cannot determine whether it’s due to change in volume or performance
static budget variance = actual result - static budget amount
Flexible budget variances
(AP - SP) x AQ
useful for analysing variable costs. adjustes for sales prices.
= actual result - flexible budget amount
Sales volume variance
(AQ - SQ) x SP
highlights how much of the results are attributed to a change in the volume sold based on the standard price.
= flex budget amount - static budget amount
formulas for actual results, flexible budgets and static budgets
AQ x AP - actual
AQ x SP - flexible
SQ x SP - static
formula for rate variance
(AP - SP) x AQ
(actual rate of input - standard rate of input) x actual quantity of input
reflects deviations from budget in prices paid for resources or DM used in production
formula for efficiency variance
(AQ - SQ) x SP
(actual quantity of input - budgeted quantity of input allowed for actual output units achieved) x budgeted rate of input
looks at difference between actual quantity of input used and the standard quantity of input that SHOULD have been used, multiplied by the budgeted rate