Accounting for Control: Variance Analysis

Question 1

What is a variance

Answer 1

The difference between a planned, standard cost and the ACTUAL cost incurred

Question 2

When is the variance unfavourable or adverse

Answer 2

When actual cost exceeds standard cost

Question 3

When is variance favourable and caution

Answer 3

when actual cost is less than standard cost

caution: could be due to lower quality so may not be so favourable e.g.: doesnt cut right so need to use more of it

Question 4

Variance analysis cycle

Answer 4

• Prepare cost performance report
• Analyse variance (what shouldve happened and why did it not)
• Identify questions
• Receive explanations
• Take corrective actions such as changing suppliers or materials
• Conducts next periods operations

Question 5

Price variance definition

Answer 5

Difference between actual price and standard price

Part of materials

Question 6

Quantity variance example

Answer 6

Difference between actual quantity and standard quantity

Part of materials

Question 7

Price variance formula

Answer 7

AQ(AP-SP)

Question 8

Quantity variance formula

Answer 8

SP(AQ-SQ)

Question 9

What is rate variance

Answer 9

comparing what was paid per hour to what we should’ve paid

Part of labour

Question 10

What is efficiency variance

Answer 10

Comparing how many hours we used compared to what we should’ve used

Part of labour

Question 11

Rate variance formula

Answer 11

AH(AR-SR)

Question 12

Efficiency variance formula

Answer 12

SR(AH-SR)

Question 13

What can rate variance also be called

Answer 13

Overhead rate and spending rate variance

Question 14

How to work out rate variance when variable

Answer 14

actual rate = variable OH / actual hours

look at standard rate or quantity in column specifically for variable