W5 - Standard Costing & Variance Analysis LEARN ALL

Question 1

What is variance & the Two types of variance

Answer 1

Variance is the difference between actual results and expected results

Favourable variance (F): Actual results better than expected results

Adverse variance (A): Actual results worse than expected results

Question 2

Variances can be split into 3 categories

Answer 2

Variable cost variances:
- Direct material: Material Price Variance & Material Usage Variance
- direct labour
- Variable overhead

Fixed production overhead variances

Sales variance

Question 3

Material variance formulas

Answer 3

Material Price Variance:
Standard price per unit of material - Actual price) x Actual quantity of material purchased

Material Usage Variance:
(Standard quantity of materials for Actual production - Actual quantity used) x Standard price per unit of material

Question 4

Labour variance formulas
3

Answer 4

Total labour variance:
Flex budget’s total labour costs - Actual total labour costs

Labour Rate variance:
(Standard labour rate per hour - Actual labour rate per hour) x Actual number of hours worked

Labour efficiency variance:
Standard number of labour hours for actual production - Actual number of hours worked) x Standard labour rate per hour

Question 5

Variable Overhead variances
3

Answer 5

Total variable overhead variance:

Flex budget’s total VOH Costs - Actual Total VOH Costs

Variable overhead rate variance:
(Standard VOH Rate per hour - Actual VOH Rate per hour) x Actual number of hours worked

Variable overhead efficiency variance:
(Standard number of labour hours for Actual production - Actual number of labour hours worked) x Standard VOH rate per hour

Question 6

Fixed Overhead Variances

Answer 6

Total fixed overhead variance (using absorption costing):
Fixed overhead actually absorbed (standard fixed overhead rate per unit x Actual production) - Actual total fixed overhead

Fixed Overhead Expenditure variance:
Budgeted fixed overheads - Actual fixed overheads

Fixed overhead volume variance:
Budgeted fixed overheads - Fixed overheads actually absorbed (Standard fixed overhead rate per unit x actual production)

Question 7

Sales variances

Answer 7

Sales volume variance:
(Actual sales volume - Budgeted sales volume) x Standard profit

Sales price variances:
(Actual selling price - Budgeted selling price) x Actual sales volume

Question 8

Operating statements (absorption)

Answer 8

Detailed statement:

Budgeted profit:
Sales volume variance

Standard profit on actual sales
Sales price variance
Profit after sales variances
Cost variances

Two columns: Favourable, Adverse
Materials - Price
- Usage
Labour - Rate
- Efficiency
Variable O/H - Rate
- Efficiency
Fixed O/H - Expenditure
- Volume

Actual Profit
Stocks valued at standard absorption cost

Standard statement - Just the difference between budgeted and actual
Standard cost:

Materials
- Price
- Usage

Labour
- Rate
- -Efficiency

Variable o/h:
Rate -
Efficiency -

Fixed o/h:
Rate -
Efficiency -

Actual cost:

Question 9

Variance analysis under marginal costing -
Main differences from absorption costing
3

Answer 9

1) Sales volume variance calculated using standard contribution rather than standard profit
(Actual sales volume - Budgeted sales volume) x Standard contribution

2) Fixed overhead volume variances are all zero (AS WE DO NOT ABSORB IN MARGINAL COSTING)
- only the fixed overheaad expenditure variances will appear in the operating statement

3) All other variances are unchanged

Question 10

Operating Statement under Marginal Costing

Answer 10

Budgeted Contribution
Sales volume variance

Standard contribution on actual sales
Sales price variance
Contribution after sales variances
Cost variances

Two columns: Favourable, Adverse
Materials - Price
- Usage
Labour - Rate
- Efficiency
Variable O/H - Rate
- Efficiency

Actual contribution
Actual fixed O/H

Actual profit
Stocks valued at standard marginal cost