variance analysis

Question 1

what is sales volume variance

Answer 1

The sales volume variance calculates the effect on profit of the actual sales volume being
different from that budgeted. The effect on profit will differ depending upon whether a marginal
or absorption costing system is being used

Question 2

how are units valued in absorption costing

Answer 2

Under absorption costing any difference in units is valued at the standard profit per unit

Question 3

how are units valued on marginal costing

Answer 3

Under marginal costing any difference in units is valued at the standard contribution per unit.

Question 4

how to calc sales volume variance

Answer 4

(Actual quantity sold – Budget quantity sold) × Standard margin

Question 5

what is the standard margin

Answer 5

The Standard margin is the standard contribution per unit (marginal costing), or the standard
profit per unit (absorption costing)

Question 6

how to calc sales price variance

Answer 6

(Actual price – Budget price) × Actual quantity sold

Question 7

what is the use of material price variance

Answer 7

A materials price variance analyses whether the company paid more or less than expected
for the materials purchased

Question 8

what is the use of material usage variance

Answer 8

The purpose of the materials usage variance is to quantify the effect on profit of using a
different quantity of raw material from that expected for the actual production achieved.

Question 9

Material price variance formula

Answer 9

(standard price - actual price) × Actual quantity purchased

Question 10

material usage variance formula

Answer 10

(standard quantity used for actual production - actual quantity used)
× standard price

Question 11

what is the use of labour rate variance

Answer 11

A labour rate variance analyses whether the company paid more or less than expected for
labour

Question 12

what is the use of labour efficiency variance

Answer 12

A labour efficiency variance analyses whether the company used more or less labour hours
than expected

Question 13

how to calc labour rate variance

Answer 13

Labour rate variance = (standard rate per hour - actual rate per hour) × Actual hours paid

Question 14

how to calc labour efficiency variance

Answer 14

Labour Efficiency variance = (standard hours used for actual production - actual hours worked) × standard rate of labour per hour

Question 15

what are Planning and operational variances used to find out ?

Answer 15

the difference between standard and actual may arise partly due to an unrealistic budget and not solely due to operational factors. The budget may need to be revised to enable actual performance to be compared with a standard that reflects these changed
conditions

this helps us understand whether the budget was set wrong or managers were inefficient

Question 16

Material Price Planning Variance

Answer 16

(Original Standard price –Revised Standard Price) x Actual Quantity Purchased

Question 17

Material Price Operational Variance

Answer 17

(Revised Standard price – Actual Price) x Actual Quantity Purchased

Question 18

Material Usage Planning Variance

Answer 18

(Original Std. Quantity for Actual Production – Revised Std. Quantity for Actual Production) x Standard rate

Question 19

Material Usage Operational Variance

Answer 19

(Revised standard Quantity for Actual Production –Actual quantity used) x Standard rate

Question 20

Some possible causes of these variances include:

Question 21

Some possible causes of these variances in the planning phase include:

Answer 21

Material price – error in original standard, market price change due to worldwide shortage or
surplus of the material, closure of a material supplier, unforeseen inflation

Material usage – error in original standard, changes in technology leading to more / less
material being required, changes in legal / regulatory requirements for the material, flood/fire
destroying material

Question 22

Some possible causes of these variances in the planning phase include:

Answer 22

Material price – buy lower / higher quality material, deliberate change of supplier, bulk buying
discounts

Material usage – training or supervision of staff being better or worse than expected, quality of
material being different to what was expected

Question 23

Labour Rate Planning Variance

Answer 23

(Original Standard rate –Revised Standard rate) x Actual hours paid

Question 24

Labour Rate Operational Variance

Answer 24

(Revised Standard rate – Actual rate) x Actual hours paid

Question 25

Labour Efficiency Planning Variance

Answer 25

(Original Std. hours for Actual Production – Revised Std. hours for Actual Production) x Standard rate

Question 26

Labor Efficiency Operational Variance

Answer 26

(Revised standard hours for Actual Production –Actual hours worked) x Standard rate

Question 27

Some possible causes of these variances in the planning phase include:

Answer 27

Labour rate – error in original standard, labour shortage or surplus in the market in general
leading to market wage rates changing, change in product specification due to change in law
causing a different grade of labour to be needed

Labour efficiency – error in original standard, change in work practices due to regulatory
requirements such as increased rest periods for staff, increased quality requirements set
externally.

If there is a learning effect with labour, then there may be an impact on the planning and
operational variances for labour efficiency

Question 28

Some possible causes of these variances in the planning phase include:

Answer 28

Labour rate – overtime working required, employing different quality staff, staff bonuses paid for
increased productivity

Labour efficiency – different quality staff used, poor work scheduling leading to increased idle
time, training or supervision of staff being better or worse than expected.

Question 29

Sales Price Planning Variance

Answer 29

(Original Standard Selling Price–Revised Standard Selling Price) x Actual unit sold

Question 30

Sales Price Operational Variance

Answer 30

(Actual Selling Price – Revised Standard Selling Price) x Actual units sold

Question 31

Sales Volume Planning Variance (Market Size Variance)

Answer 31

(Revised Budgeted Sales units – Budgeted sales units) x Std. profit or contribution per unit

Question 32

Sales Volume Operational Variance (Market Share Variance)

Answer 32

(Actual Sales units – Revised Budgeted sales units) x Std. profit or contribution per unit

Question 33

some possible reasons that cause the variances are

Answer 33

These variances may be caused by an upturn or downturn in general economic conditions,
changes in technology meaning a product is much more relevant now.

Operational sales variances look into the differences between actual results and the revised
budget. The operational sales volume variance is also referred to as the market share variance.
These variances could be due to new competitors, competitors leaving the industry, the
performance of the sales team, the quality of the product etc

Question 34

what reasons should the original budget only be revised for

Answer 34

1. Poor planning – if the mistake is a planning error e.g. someone putting down the wrong
   figures
2. Uncontrollable factors – if the change is due to something which is outside of the control of
   the organization e.g. supplier liquidation, government legislation or market downturn

Question 35

what reasons should the original budget only be revised for