Variance Analysis Flashcards
Step 1 - Performance Report
Compares Budget to Actual
Could be explained by a decrease in volume but other issues could be hiding. You have to take a closer look.
Step 2 - Use Flexible Budget
(shows that part of the variance that is due to less
volume, as well as part that is due to lower contribution
margin and/or higher variable costs)
Compare:
Actual Flexible Flexible Sales
Results @ Budget Budget @ Activity Master
Actual Var’s Actual (Vol Var) Budget
Variance Analysis Using Standards - Direct Costs:
Std. Price x Std. Quant. = Standard Direct Costs
Variance Analysis Using Standards - Indirect Costs (overhead)
Std. (predetermined) application rate x Std. Quant. = Standard Indirect Costs
Variance Calculations Using Standards
First look at the logic -
Actual < Standard = Favorable
Actual > Standard = Unfavorable
Variances from Standard also evaluated for control
Controllable vs. Uncontrollable
Product Costs that are Subject to Variance Analysis
DM - Direct Materials
DL - Direct Labor
VOH - Variable Manufacturing Overhead
FOH - Fixed Manufacturing Overhead
Spending & Usage are the two factors we evaluate
Price (or rate) and Quantity (or efficiency)
DM Price Variance
Actual Q PURCH’D x (Actual Price-Standard Price)
DM Quantity Variance
Standard Price x (Actual Q Used - Std Q. Allowed)
DL Rate Variance
Actual Hrs Worked x (Actual Rate - Std. Rate)
DL Efficiency Variance
Standard Rate x (Actual Hrs. worked - Std Hrs Allowed)
Selling Price Variance=
(Actual SP/Unit - Budgeted SP/Unit) x Actual # sold
Sales Volume Variance =
(Actual #Sold - Budgeted #Sold) x Budgeted CM/Unit
Standard Costing Systems used most often with
Flexible Budgets
