variance analysis II

Question 1

planning variance

Answer 1

show that part of a variance that is due to defective or inappropriate standard or budget due to unforeseeable or uncontrollable factors

Question 2

operational variances

Answer 2

show that part of a variance that is due to actions or factors within a mangers control

Question 3

when do planning variances arise

Answer 3

when a budget or standard is deemed to be incorrect due to factors outside of the manager’s control and the budget or standard has to be revised

Question 4

planning and operational variances for materials is what

Answer 4

material price variance
material usage variance

Question 5

planning and operational variances for Labour is what

Answer 5

labour rate variance
labour efficiency variance

Question 6

valid reasons for revising a standard and creating a planning variance

Answer 6

• to provide genuine info to decision makers, rather than make operational variances look more favourable
• where original standards are genuinely outdated and/or unsuitable benchmarks

Question 7

when should a variance be investigated

Answer 7

variance should always try to be understood

not always feasible to investigate every variances. as a basic rule of thumb variances should be investigated where they are:
- material
- unexpected
- persistent
- getting bigger
- show fundamental errors in planning
- affects significant resource utilisation
- affects the ability of the organisation to act responsibility or fulfil obligations