Varaince analysis Flashcards
(19 cards)
What is variance analysis?
It is a method to analyze the differences between budgeted and actual results to control and evaluate performance
What is a standard cost in variance analysis?
A predetermined cost for materials, labour, or overheads under efficient conditions, used for budgeting and performance evaluation.
What are the main purposes of standard costing?
Decision-making, planning, performance evaluation, and inventory valuation.
How is a standard cost different from a budget?
Standard costs are per unit, while budgets are for total activities using those standards
Why are flexible budgets used in variance analysis?
Because they adjust to actual activity levels, allowing meaningful comparisons with actual results
What is a sales volume variance?
The difference in expected and actual sales volume multiplied by the standard contribution or gross profit per unit
What is a sales price variance?
The difference between actual and standard selling price, multiplied by actual quantity sold
How are income variances categorized?
As volume variances (STD price × quantity difference) and price variances (ACTUAL quantity × price difference)
What is a usage variance?
The difference between the standard and actual quantity used, multiplied by the standard price
What is a price variance?
the difference between the standard and actual price per unit, multiplied by actual quantity used or purchased
What determines whether to use quantity purchased or used for material price variance?
The company’s raw material valuation policy (standard vs actual cost)
What is labour efficiency variance?
Difference in actual vs. standard time taken to produce units, valued at the standard wage rate
What is labour rate variance?
Difference in actual vs. standard wage rate, multiplied by actual hours worked
What is variable overhead efficiency variance?
Difference in hours used vs. standard hours, multiplied by the standard variable overhead rate
What is variable overhead spending variance?
Difference in actual vs. standard overhead rate, multiplied by actual activity level
What are the three types of fixed overhead variances under ACM?
Spending, Efficiency, and Capacity variances
What is the fixed overhead volume variance?
Combined impact of efficiency and capacity variances, based on unit difference × standard overhead rate per unit
Why is it important to state if a variance is favourable or adverse?
It indicates whether the variance had a positive or negative effect on profits
What should be considered when evaluating performance using variances?
Only evaluate based on variances the manager can control and always explain why the variance occurred
