W7 - Planning & Operational Variance LEARN ALL

Question 1

Total conventional variance

Answer 1

Flexible budget - Actual results

Can be split into 2:
Planning variance & Operational variance
Adding the two together = Total conventional variance

Question 2

Planning variance

Answer 2

(Flexible Budget – Revised Budget)

Question 3

Operational variance

Answer 3

Revised Budget – Actual Results

Question 4

Planning and operational variances example, find the 2.

At the beginning of the year, Jones Ltd set a standard marginal cost for its main product of £25 per unit. The standard cost is recalculated once a year as part of the budget process.
Actual production costs during October were £304,000 and 8,000 units were made.
With the benefit of hindsight, the management of Jones Ltd have realised that a more realistic standard cost under current economic conditions would be £40

Answer 4

Flexible Budget: Original standard for Actual volume
= £25 x 8,000 = £200,000

Revised Budget: Revised standard for Actual volume
= £40 x 8,000 = £320,000

Actual Results: Actual cost of Actual volume:
Total Conventional Variance: (Flexible Budget – Actual Results)
= £200,000 - £304,000 = £104,000 A

Planning Variance: (Flexible Budget – Revised Budget)
= £200,000 - £320,000 = £120,000 A

Operational Variance: (Revised Budget – Actual results)
= £320,000 - £304,000 = £16,000 F

Question 5

Operational variance can be split into 2

Answer 5

Operational price/rate variance

Operational usage/efficiency variance

Question 6

Operational Material Price Variance formula

and comparison with Conventional Price variance

Answer 6

(REVISED standard price per unit of material - Actual price) x Actual quantity of mats purchased

Operational variance formulas differ from conventional ones, where in the conventional one it would be: (Standard price per mat - actual price) x actual quantity, we add REVISED price instead

Question 7

Operational Material Usage Variance formula

and comparison with Conventional usage variance

Answer 7

(Standard quantity of mats for Actual production - Actual quantity of mats used) x REVISED Standard price per unit of material

Difference between this and conventional usage variance is that we use Revised Standard Price per unit

Question 8

Operational labour rate and labour efficiency variances

How do they differ form conventional labour rate and efficiency variance

Answer 8

Operational labour rate variance:
(REVISED Standard labour rate per hour - Actual) x Actual hours worked

Operational Labour efficiency variance:
(Standard number of labour hours for Actual Production - Actual number of hours worked) x REVISED Standard labour rate per hour

If there are two errors in the question, you can also change Standard labour hours for actual prod. to REVISED Standard labour hours for actual production