Variance Analysis

Question 1

What types of variance can you look at?

Answer 1

Total variance- did we end up spending more of less?
Price variance- did we end up spending more or less on materials/labour?
Usage variance- did we end up using too much/too little?

Question 2

What 3 things do you need to calculate variances?

Answer 2

standard cost(cost card)
budgeted volumes and costs/revenues
actual volumes and costs/revenues

Question 3

How do you calculate materials variance?

Answer 3

Based on ACTUAL production:
How much was budgeted?
How much was actual?
Variance (either adverse or favourable)

Materials Usage (kg):
How much used? 
what should it cost?
What did it cost?
(always value at standard cost!)

Materials Price?
How much purchased?
How much was budgeted to cost?
How much did it cost?

Question 4

Labour variance?

Answer 4

Based on ACTUAL production:
How much should it cost?
How much did it cost?
Variance

Labour Rate
How much was budgeted?
How much was actual?
variance

Labour efficiency?
Should have used?
Did use?
Variance in hrs x values per hour on standard cost card

Question 5

Variable overhead?

Answer 5

Based on ACTUAL production:
Should cost?
Did cost?

Variable overhead expenditure:
should cost?
Did cost?

Variable overhead efficiency?
Based on hrs worked in actual production
should use?
did use?

Question 6

Sales Variances?

Answer 6

Sales price variance?
Based on actual
actual revenue?
Expected revenue?

Sales volume contribution
Difference between actual and budget sales volume
value at contribution per unit

Question 7

Final reconciliation of variances?

Answer 7

Establish the budgeted contribution

then add up all the variances (not the total, only the breakdowns!) and minus them from the actual revenue

Question 8

How to interpret sales variance?

Answer 8

sold more items than expected, if adverse price variance may be because we sold at lower prices

Question 9

Interpret Materials variance?

Answer 9

obtained materials for lower price than expected for example- good negotiating? lower quality? cheaper materials?

Question 10

Interpret labour variance?

Answer 10

adverse labour rate could be caused by employing higher quality staff than budgeted, especially if efficiency is higher