Variances

Question 0

Fixed overhead variances

Answer 0

Fixed costs don’t vary with changes is output - budgeted/ planned output should be the same whatever level of output

If actual varies from planned fixed costs then expenditure was higher or lower than planned

Fixed overhead expenditure variance = difference between planned and actual expenditure

Question 1

Variances Analysis

Answer 1

Process by which total differences between STANDARD and ACTUAL results is analyses

Actual > expected = favourable (F)
Actual < expected = adverse (A)

1. Variable cost material (direct material , direct labour, variable production overhead)
2. Fixed production overhead
3. Sales variances

Question 2

How to calculate variances

Answer 2

1. Fixed overhead total variance = fixed overhead incurred - fixed overhead absorbed
2. Fixed overhead expenditure variance = budgeted fixed overhead expenditure - actual fixed overhead expenditure
3. Fixed overhead volume variance = (actual production or volume - budgeted ) x standard absorption rate per unit

Question 3

Benchmarking

Answer 3

Comparison exercise through which organizations attempt to improve performance…

4 Types…

1. Internal - functions/ units in the same industry
2. Functional - across industries
3. Competitive - direct competitors
4. Strategic - competitive, aimed at strategic action

Question 4

Operating Statement

Answer 4

Report for management prepared on a regular basis showing actual costs and revenues compared to budget and showing variances

A) MARGINAL COST OPERATING STATEMENT

1. Starts with budgeted contribution
2. Adjusts for marginal cost variances
3. Ends up with actual contribution

B) TOTAL ABSORPTION COST OPERATING STATEMENT…

Question 5

Total variance = price variance + usage variance

Answer 5

Mix variance + yield variance = usage variance

• 2 requirements must be met to make mix variances meaningful
  1. More than one material type
  2. Substitution effect