Chapter 5: Variance Analysis

Question 1

What is a variance?

Answer 1

Difference between actual results and the budget or standard

Question 2

How do you calculate sales price variance?

Answer 2

Actual quantity sold x Actual Price (AQAP)

Actual quantity sold x Standard Price (AQSP)

Question 3

How do you calculate sales volume variance?

Answer 3

Actual quantity sold x standard margin (AQSM)

Budget Quantity sold x Standard Margin (BQSM)

Question 4

What causes a sales price variance?

Answer 4

Higher than expected discounts offered to customers to persuade them to buy, or due to purchasing in bulk
Lower than expected discounts, perhaps due to strength of sales demand
Effect of low price offers during a marketing campaign
Market conditions forcing an industrywide price changes
Changes to product quality or design

Question 5

What causes a sales volume variance?

Answer 5

Successful or unsuccessful direct selling efforts
Successful or unsuccessful marketing efforts
Unexpected changes in customer needs and buying habits
Failure to satisfy demand due to production difficulties
Higher demand due to a cut in selling prices, or lower demand due to an increase in sales price
Changes to the level or nature of competition
Changes to product quality or design

Question 6

How to calculate material price variance?

Answer 6

Actual quantity paid x Actual price (AQp AP)

Actual quantity paid x Standard Price (AQp SP)

Question 7

How to calculate closing inventory of material?

Answer 7

Actual quantity paid x Standard Price (AQp SP)

Actual quantity used x Standard Price
(AQu SP)

Question 8

How to calculate material usage variance?

Answer 8

Actual quantity used x Standard Price
(AQu SP)

Standard Quantity x Standard Price (SQ SP)

Question 9

What are the causes of a material price variance?

Answer 9

Using a different supplier
Changes to volume leading to achieving/losing bulk discounts
An unexpected increase in the prices charged by a supplier
Market shortage of materials
Unexpected buying costs, such as high delivery costs
Efficient or inefficient buying procedures
A change in material quantity, resulting in either higher or lower purchase prices

Question 10

What are the causes of a materials usage variance?

Answer 10

Change to the rate of scrap or wastage
Using a different quality of material could affect wastage rate
Defective materials
Better/worse quality control
More/less efficient work procedures
Changes to production methods or product design

Question 11

How to calculate labour rate variance?

Answer 11

Actual hours paid x Actual rate (AHp AR)

Actual hours paid x Standard rate (AHp SR)

Question 12

How to calculate labour idle time?

Answer 12

Actual hours paid x Standard rate (AHp SR)

Actual hours worked x Standard rate (AHw SR)

Question 13

How to calculate labour efficiency variance?

Answer 13

Actual hours worked x Standard rate (AHw SR)

Standard Hours x Standard Rate (SH SR)

Question 14

How do you calculate idle time variance?

Answer 14

(Actual Hours paid - Actual Hours worked) x Standard Rate

This is always adverse

Question 15

What causes a labour rate variance?

Answer 15

Unexpected increase in basic rate of pay
Payments of bonuses
Changes to labour mix resulting in using labour that is more or less experienced that the ‘standard’
Labour shortages

Question 16

What causes a labour efficiency variance?

Answer 16

Changes to labour motivation
Changes to labour mix resulting in using labour that is more or less experienced that the ‘standard’
Improved working methods
Industrial action by the work force
Poor supervision
A ‘learning effect’ amongst the work force

Question 17

What causes a labour idle time variance?

Answer 17

Unexpected lost time due to production bottlenecks and resource shortages
Machine breakdowns
Strike action
Lack of sales/production
Machine set-ups
Seasonal demand

Question 18

How do you calculate variable overhead expenditure variance?

Answer 18

Actual hours worked x Actual rate (AHw AR)

Actual hours worked x Standard rate (AHw SR)

Question 19

How do you calculate variable overhead efficiency variance?

Answer 19

Actual hours worked x Standard rate (AHw SR)

Standard hours x Standard rate (SH SR)

Question 20

What causes overhead expenditure variances?

Answer 20

Changes in machine running costs

Question 21

What causes overhead efficiency variances?

Answer 21

Causes similar to those for a direct labour efficiency variance

Question 22

How do you calculate the fixed overhead expenditure variance?

Answer 22

Actual fixed overhead cost

Budgeted fixed overhead cost (BQ x FOAR per unit)

Question 23

How do you calculate the fixed overhead volume variance?

Answer 23

Budgeted fixed overhead cost (BQ x FOAR per unit)

Standard fixed overhead cost for actual output (AQ x FOAR per unit)

Question 24

What type of costing causes a fixed overhead volume variance?

Answer 24

Absorption

Question 25

What are the two variance you calculate to split the fixed overhead volume variance?

Answer 25

Capacity variance
Efficiency variance

Question 26

How do you calculate the fixed overhead capacity variance?

Answer 26

Budgeted fixed overhead cost (BH x FOAR per hour)

Actual hours x fixed overhead absorption rate (AH FOAR per hour)

Question 27

How do you calculate the fixed overhead efficiency variance?

Answer 27

Actual hours x fixed overhead absorption rate (AH FOAR per hour)

Standard fixed overhead cost for actual output (SH x FOAR per hour)

Question 28

What are the causes of a fixed overhead expenditure variances?

Answer 28

Spending in excess of the budget