Variance Analysis_M7 Flashcards
What is FC Variance and VC Variance?
FC Variance
- Since fixed costs are expected to be the same at all levels of activity it will be unfavorable if a project spends more than budgeted by that amount.
- Fixed costs are a constant dollar amount and do not change with changes in sales.
The variable cost variance
- Is $0 since the expected and actual variable costs are each $15 per unit. If CM% is given and the SP$ per unit is given than VC$ per unit must be the other 75% of the SP$. or vice versus if VC is given instead.
What is an efficiency variance?
Effective customer service efficiency saving money.
- The direct labor variance is an expense variance. Therefore, when the actual hours worked are less (greater) than the standard hours worked, this is favorable (unfavorable).
- Also, when the actual rate per hour is less (greater) than the standard hours worked, this is favorable (unfavorable).
Which type of variances relate to which managers?
- Variable overhead spending variance is most controllable by the plant manager and somewhat by production control.
- The purchasing manager is directly involved in the negotiation of materials prices and would have the greatest influence over the direct materials price variance. The direct materials price variance could be used to monitor purchasing manager performance.
- The direct labor efficiency variance would largely be under the control of the production manager.
- The direct materials quantity variance relates to the number of materials used and would be influenced most significantly by the production manager.
- Material usage variance is most controllable by the production control supervisor.
- Fixed overhead volume variance is most controllable by other than production control.
Which variance could be the cause of a result of another variance?
Unfavorable DM usage variance can cause a unfavorable DL efficiency variance as faulty materials could cause employees to work harder with that material.
What are the variances?
- For Labor variances use actual rate compared to standard hours vs. actual hours.
- For material variances use standard rate compared to actual units vs. budgeted units.
- For Sales Price Variance: use the the Sp actually sold at diffrence from the Sp price budgeted to be sold times Act. Units sold.
- Volume Variances Production in Units.= Act. Produvtion in units - Budgeted Production in Units x Per unit std. FO Rate
- Volume Variance FO = budgeted FO - Applied FO
- Market share variance: (actual market share - budgeted market share) x total units x CM per unit
- Market size variance: (actual market size - expected market size) x market share x CM per unit.
- Sales volume variance is separate and that is a comparison of actual units sold to budgeted units sold.
What are the efficiency variances?
- DL Efficiency Variance = Std. DL - Act. DL Used x Std. DL Rate
What other variances can the sales volumn variance be divided between?
For a company that produces more than one product, the sales
volume variance can be divided into sales quantity variance and sales mix variance.
What are flexible budgets?
- Flexible budgets accommodate changes in activity levels.
- They contain both fixed and variable components.
- The actual activity level is used to create a budget for that level.
- Flexible budgets are adjusted based on internal factors.
What are the different budgets?
Flexible Budgets
Standard costs usually means that a flexible budget is being
used. Standard costs per unit can be used to adjust the flexible budget to the actual volume.
A Zero-Based Budget
Starts at zero. Everything must be justified.
Static Budgets
Are the opposite of flexible budgets. Standard costs per unit would not be required, since a static budget addresses costs at one specific volume.
A Strategic Budget
Is long-term and does not use standard costs.
What are marginal analysis?
Marginal analysis is used to evaluate capacity utilization.
