Variance Analysis Flashcards
What are variances?
Difference between a planned or budgeted cost (or revenue) and the actual incurred.
What are favourable and adverse variances?
Favourable gives higher than expected profits, adverse gives lower
What can variance analysis provide information for?
Cost control
Reconciliation between budgeted and actual
Performance appraisal
How to calculate direct material variance?
Actual production x standard quantity x standard price
Actual quantity x actual price
= variance
How to calculate direct material price variance?
Actual purchases x standard price
Actual purchases x actual price
= variance
How to calculate direct material usage variance?
Actual production x standard usage Actual production x actual usage = usage variance in kg x standard cost per kg = variance
What do we always assume in direct material variances?
Price variance plus the usage variance will equal the total variance when the quantity purchased equals the quantity used
How to calculate direct labour variance?
Actual production x standard hours x standard rate
Actual hours paid x actual rate
= variance
How to calculate direct labour rate variance?
Actual hours paid x standard rate
Actual hours paid x actual rate
= variance
How to calculate direct labour efficiency variance?
Actual production x standard hours Actual hours worked = efficiency variance in hrs x standard rate per hour = direct labour efficiency variance
How to calculate sales volume variance?
Budgeted sales Actual sales = volume variance in units x standard profit per unit = variance
How to calculate sales price variance?
Actual sales volume x standard price
Actual sales volume x actual price
= variance
How to calculate total variable overhead variance?
Actual production x standard hours x standard rate
Actual hours paid x actual rate
= variance
How to calculate variable overhead expenditure variance?
Actual hours worked x standard rate
Actual hours paid x actual rate
= variance
How to calculate variable overhead efficiency variance?
Actual production x standard hours Actual hours worked = efficiency variance in hours x standard rate per hour = variance
How to calculate fixed overhead expenditure variance?
Budgeted fixed overhead
Actual fixed overhead
= variance
How to calculate fixed overhead volume variance?
Budgeted production Actual production = volume variance in units x fixed overhead absorption rate = variance
What will be the difference if we use marginal costing (as opposed to absorption used)?
Sales volume variance will be valued at standard contribution per unit (not standard profit)
No fixed overhead volume variance
Variance operating statement pro-forma:
Budgeted profit Sales volume variance --------- Standard profit for actual sales volume Sales price variance --------- Fav Adv Materials price Materials usage Labour rate Labour efficiency Var o/h expenditure Var o/h efficiency Fix o/h expenditure Fix o/h volume ---------------------- Total -------- Actual profit ----------------------
Why might there be materials price/usage variances?
Change of suppliers
Change of terms
Damaged material
Wastage
Why might there be labour rate/efficiency variances?
Unexpected pay rise
More/less skilled workers
(In)Effective training
Any method of motivation
Why might there be overhead expenditure/volume variances?
Increase/decrease in price of utilities
Level of activity is higher/lower than expected
Why might there be sales price/volume variances?
Discounts
Competition
Increased demand
What could explain any variance?
The standard was wrong (only use this once)