variance analysis Flashcards
(35 cards)
what is sales volume variance
The sales volume variance calculates the effect on profit of the actual sales volume being
different from that budgeted. The effect on profit will differ depending upon whether a marginal
or absorption costing system is being used
how are units valued in absorption costing
Under absorption costing any difference in units is valued at the standard profit per unit
how are units valued on marginal costing
Under marginal costing any difference in units is valued at the standard contribution per unit.
how to calc sales volume variance
(Actual quantity sold – Budget quantity sold) × Standard margin
what is the standard margin
The Standard margin is the standard contribution per unit (marginal costing), or the standard
profit per unit (absorption costing)
how to calc sales price variance
(Actual price – Budget price) × Actual quantity sold
what is the use of material price variance
A materials price variance analyses whether the company paid more or less than expected
for the materials purchased
what is the use of material usage variance
The purpose of the materials usage variance is to quantify the effect on profit of using a
different quantity of raw material from that expected for the actual production achieved.
Material price variance formula
(standard price - actual price) × Actual quantity purchased
material usage variance formula
(standard quantity used for actual production - actual quantity used)
× standard price
what is the use of labour rate variance
A labour rate variance analyses whether the company paid more or less than expected for
labour
what is the use of labour efficiency variance
A labour efficiency variance analyses whether the company used more or less labour hours
than expected
how to calc labour rate variance
Labour rate variance = (standard rate per hour - actual rate per hour) × Actual hours paid
how to calc labour efficiency variance
Labour Efficiency variance = (standard hours used for actual production - actual hours worked) × standard rate of labour per hour
what are Planning and operational variances used to find out ?
the difference between standard and actual may arise partly due to an unrealistic budget and not solely due to operational factors. The budget may need to be revised to enable actual performance to be compared with a standard that reflects these changed
conditions
this helps us understand whether the budget was set wrong or managers were inefficient
Material Price Planning Variance
(Original Standard price –Revised Standard Price) x Actual Quantity Purchased
Material Price Operational Variance
(Revised Standard price – Actual Price) x Actual Quantity Purchased
Material Usage Planning Variance
(Original Std. Quantity for Actual Production – Revised Std. Quantity for Actual Production) x Standard rate
Material Usage Operational Variance
(Revised standard Quantity for Actual Production –Actual quantity used) x Standard rate
Some possible causes of these variances include:
Some possible causes of these variances in the planning phase include:
Material price – error in original standard, market price change due to worldwide shortage or
surplus of the material, closure of a material supplier, unforeseen inflation
Material usage – error in original standard, changes in technology leading to more / less
material being required, changes in legal / regulatory requirements for the material, flood/fire
destroying material
Some possible causes of these variances in the planning phase include:
Material price – buy lower / higher quality material, deliberate change of supplier, bulk buying
discounts
Material usage – training or supervision of staff being better or worse than expected, quality of
material being different to what was expected
Labour Rate Planning Variance
(Original Standard rate –Revised Standard rate) x Actual hours paid
Labour Rate Operational Variance
(Revised Standard rate – Actual rate) x Actual hours paid
