P1 - Variances Flashcards
What is a standard cost?
The estimate given in advance to how much something should cost
What 3 things are standard costs useful for?
- Help in producing fixed, flexible and flexed budgets
- Compare with the actual costs and hence as a control technique - variance analysis
- Value inventories in the actual and budgeted P&L and SFP
What 3 things are used in creating the standard quantities?
- Past experience
- Product specifications
- Department experts
What 3 things are used in creating the standard prices?
- Current prices
- Expected future price changes
- Supplier/discount availability
What are the 4 possible different standards?
- Basic - nothing changed since first set
- Current
- Attainable - some improvements
- Ideal - optimum efficiency and minimum waste
How do you calculate the sales volume variance?
Difference between actual and budgeted sales volume, valued at standard profit or contribution (absorption or contribution)
How do you calculate the sales price variance?
The difference between the actual revenue and the expected revenue for the actual volume sold valued at standard price
How do you calculate the total materials variance?
The difference between the standard cost of actual volume produced and the actual cost of materials incurred
How do you calculate the materials price variance?
The difference between the expected standard cost of materials purchased and how much they actually cost
How do you calculate the materials usage variance?
The difference between the standard quantity of materials used for the actual volume produced and the actual quantity of materials used, valued at the standard cost per unit of measure
How do you calculate the total labour variance?
The difference between the standard cost of labour for actual volume produced and the actual cost of labour incurred
How do you calculate the labour rate variance?
The difference between the standard cost of actual labour hours paid for and the actual cost paid
How do you calculate the idle time variance?
The standard cost of idle hours (difference between hours paid and hours worked, always negative)
How do you calculate the labour efficiency variance?
The difference between the standard hours for volume produced and the actual hours used, valued at the standard labour cost per hour
How do you calculate the total variable overhead variance?
The difference between the standard overhead cost for actual production and the actual overhead incurred
How do you calculate the variable overhead expenditure variance?
The difference between the standard overhead cost for actual hours worked and the actual overhead incurred
How do you calculate the variable overhead efficiency variance?
The difference between the standard hours for volume produced and the actual hours used, valued at the standard variable overhead cost per hour
How do you calculate the total fixed overhead variance?
The difference between the actual units produced valued at standard cost, and the actual fixed overhead incurred
How do you calculate the fixed overhead expenditure variance?
The difference between the budgeted fixed overhead and the actual fixed overhead
How do you calculate the fixed overhead volume variance?
The difference between the actual and budgeted units of production, valued at the standard cost per unit
How do you calculate the fixed overhead capacity variance?
The difference between the budgeted and actual hours worked, valued at standard cost per hour
How do you calculate the fixed overhead efficiency variance?
The difference between the standard hours for volume produced and the actual hours used, valued at the standard fixed overhead cost per hour
What might 3 causes of a favourable sales price variance be?
- Higher inflation
- Market shortages
- Higher quality
What might 3 causes of a favourable sales volume variance be?
- Increased economic activity
- Lower prices
- Successful advertising