Variance Analysis

Question 1

What are the two type of variance analysis?

Answer 1

Material Mix & Yield

Sales Mix & Quantity

Question 2

What is the mix variance?

Answer 2

The mix variance is the financial impact of using different proportions of raw material to the standard.

Question 3

What is yield variance?

Answer 3

Yield variance represents the financial impact of the input yielding a different level of output to the standard.

Question 4

What are additional production control methods?

Answer 4

Quality control
Customer satisfaction scores
Wastage rates
Number of late deliveries

Question 5

What is the sales mix variance?

Answer 5

Sales mix variance occurs when the proportions of the various products sold are different from this in the budget.

Question 6

What is the quantity variance?

Answer 6

Quantity variance is the difference in contribution/profit because of a change in sales volume from the budgeted volume of sales.

Question 7

What is the relationship between sales volume, sales mix and sales quantity variances?

Answer 7

Sales Volume Variance = Sales Mix Variance + Sales Quantity Variance

Question 8

What is a planning variance?

Answer 8

A planning variance is one that is driven by a wrong standard - they are not controllable and are then revised.

Question 9

What is an operational variance?

Answer 9

An operational variance is one that is within the managers control.

Question 10

How is a planning variance calculated?

Answer 10

Difference between the original standard and the revised standard.

Question 11

How is an operational variance calculated?

Answer 11

Difference between the revised standard and the actual performance.

Question 12

When is the only time we should revise a budget?

Answer 12

When items beyond the control of the organisation occur - not for operational issues.

Question 13

What are the advantages of revising a budget?

Answer 13

1. Highlights variances which are controllable and not controllable
2. ensures operational performance is appraised by reference to realistic targets
3. should ensure future budgets are realistic

Question 14

What are the disadvantages of revising a budget?

Answer 14

1. could be biased
2. may need external information
3. may undermine original budget as a target and motivator
4. may be taken advantage of by employees excusing operating problems as poor planning if using this method.