Variances Flashcards
Material usage variance (Top)
Standard qty of material used (actual production)
MINUS
actual qty of material used actual production
Material price variance (Bottom)
Standard cost of material used
MINUS
Actual cost of material used
Labour rate variance (Bottom)
Standard cost of actual hours
MINUS
Actual cost of actual hours
Labour efficiency variance (Top)
Standard hours for actual production
MINUS
Actual hours used at standard rate for actual production
Other performance indicators
- machine utilisation ratios (measure of capacity)
- material wastage
- idle time used
- reject rate
The meaning of material price variance
The part of material cost variance that is due to price of material differing from standard
The meaning of material usage variance
The part of material cost variance that is due to the quality of material used differing from standards
The meaning of labour rate variance
The part of the labour cost variance that is due to the labour rate differing from standard
The meaning of labour efficiency variance
The part of the labour cost variance that is due to the number of labour hours used differing from standard
Measuring performance - controllable costs
A possible method of measurement is variance analysis. However the cost centre manager is not responsible for fixed costs which aren’t controllable
Measuring performance - controllable profit
Profit margin or contribution to sales ratio as well as variance analysis.
Measuring performance - return on capital employed in an investment centre
Calculation of profit and of capital employed, profit margin/contribution to sales ratio and variances are used
