variance analysis

Question 1

What is the formula for Sales Volume Variance?

Answer 1

(Budgeted Volume - Actual Volume) × Standard Profit

Question 2

What is the formula for Sales Price Variance?

Answer 2

(Actual volume x selling price) - actual sales

Question 3

What is the formula for Material Usage Variance?

Answer 3

((Act vol x reccomended amount) - act usage) x price per kg

Question 4

What is the formula for Material Price Variance?

Answer 4

(actual usage x price) - act cost

Question 5

What is the formula for Labour Efficiency Variance?

Answer 5

((act volume x hrs) - act hrs) x price

if mins= min/60 to get hrs

Question 6

What is the formula for Labour Rate Variance?

Answer 6

(act hrs x price) - act price

Question 7

What is the formula for VOH expenditure

Answer 7

(act volume x OH) - act expenditure

Question 8

What is the formula for Fixed Overhead (FOH) Expenditure Variance?

Answer 8

(budgeted vol x FOH pu) - Actual FOH Expenditure

Question 9

What is the formula for Fixed Overhead (FOH) Volume Variance?

Answer 9

(budgeted - act vol) x FOH pu

Question 10

What is standard costing?

Answer 10

A budgeting tool that sets predicted costs and revenues for producing a unit of output

Question 11

how does standard costing help with budgetary control?

Answer 11

It monitors performance by comparing planned and actual results to find variances

Question 12

What do standard costs include?

Answer 12

physical quantities (e.g matierlas, hours) and monetary values (e.g prices, rates)

Question 13

what are the two main types of vairances in standard costing?

Answer 13

price and volume

Question 14

what is price variance?

Answer 14

a difference in the money value (e.g higher or lower cost than expected)

Question 15

what is volume variance?

Answer 15

a difference in activity or quantity levels (e.g more or fewer untis made)

Question 16

what causes variances in standard costing?

Answer 16

inefficiencies, unrealstic standards, or changes in conditions

Question 17

why is standard costing more useful in manufacturing?

Answer 17

because it suits repetitive and standardised processes

Question 18

why might standard costing be less useful in custom jobs?

Answer 18

custom work makes it harder to predict and control unit costs accuratley

Question 19

when does the original budget remain useful despite changes in activity?

Answer 19

for sales volume and fixed overhead absorption differences

Question 20

what happens to fixed overheads when production levels change?

Answer 20

they are spread over more or fewer units, affecting unit cost and profit

Question 21

Can standard costing be used with other costing methods?

Answer 21

Yes, e.g Activity-Based Costing.

Question 22

How can standard costs stay useful over time?

Answer 22

By regularly reviewing and updating them to match actual performance.

Question 23

What is the purpose of variance analysis?

Answer 23

To explain why actual performance differs from the budget.

Question 24

What causes sales volume variance?

Answer 24

Changes in demand, price, product quality, or marketing.

Question 25

What causes sales price variance?

Answer 25

Market demand shifts, competition, or product perception.

Question 26

What causes material usage variance?

Answer 26

Material quality, worker efficiency, or production changes.

Question 27

What causes material price variance?

Answer 27

Supplier rates, discounts, market shifts, or bad budgeting.

Question 28

What causes labour rate variance?

Answer 28

Staff skills, overtime, wage changes, or budget errors.

Question 29

What causes labour usage variance?

Answer 29

Motivation, skill level, or incorrect time estimates.

Question 30

What causes fixed overhead volume variance?

Answer 30

Production level changes, strikes, or demand shifts.

Question 31

What causes fixed overhead expenditure variance?

Answer 31

Price changes or seasonal effects.

Question 32

How does variance analysis support performance analysis?

Answer 32

It identifies areas that need attention or improvement.

Question 33

What is "management by exception"?

Answer 33

Focusing on areas where actual results deviate significantly.

Question 34

How does variance analysis improve accountability?

Answer 34

It helps assign responsibility for overspends or savings.

Question 35

What are dysfunctional effects of variance analysis?

Answer 35

Demotivation, stress, gaming the system, or conflict.

Question 36

What is "punishment accounting"?

Answer 36

When staff feel blamed or overly controlled due to variances.

Question 37

Why can unrealistic standards be harmful?

Answer 37

They lower morale and lead to gaming behaviours.

Question 38

How does variance analysis help performance management?

Answer 38

It enables appraisals, motivates staff, and guides decisions.

Question 39

Why must standards be regularly updated?

Answer 39

Outdated standards reduce accuracy and relevance.