Variance Analysis

Question 1

Static budget

Answer 1

Budgeted amount of a single level of output

-does NOT distinguish between variances caused by changes in output to changes in cost

Question 2

Static budget variance

Answer 2

= Actual results - static budget amount

Question 3

Flexible budget

Answer 3

Expected amounts for a range of output levels I.e flexed version of static budget
-variances by output and by cost can be separated

Question 4

Level 1 variances

Answer 4

Static budget = actual results - static amount

Flexible budget variance = actual results - flexed budget amount

Question 5

Level 3

Answer 5

Price variance= (AP -SP)AQI

Efficiency variance = (AQI - SQI4O)SP

Variable OH spending (efficiency) variance= (AR -SR) AQ

Question 6

Criticisms of variances

Answer 6

Must not be interpreted in isolation due to trade off between variances
Causes of variances must be thought of carefully before using as performance measure
Depends on quality of info gathered