variance formulas Flashcards
sales volume variance
(AS-BS) X standard profit
sales price variance
(SP-AP) X AQ
direct material price variance
(SP-AP)X AQ
direct material usage variance
(SQ-AQ)X SP
direct labour rate variance
(SR-AR) X ALH
Direct labour efficiency variance
(SH-AH)X SR
fixed production volume variance
(AP-BP)X fixed OH absorption rate
fixed OH expenditure variance
(BO-AO)
material price favourable and adverse
favourable:
- unforeseen discounts received
- greater care in purchasing
- change in material standard
adverse:
- price increase
- careless purchasing
- change in material standards
material usage adverse and favourable
favourable:
- materials used for higher quality than standard
- more efficient use of material
- errors in allocating materials to jobs
adverse:
- defective material
- excessive waste of theft
- stricter quality control
- errors in allocating material to jobs
idle time favourable or adverse
the idle time variance is always adverse
labour efficiency favourable or adverse
favourable:
- output produced more quickly than expected because of worker motivation, better quality materials etc
- errors in allocating time to jobs
- a higher grade of labour than originally planned
adverse:
- lost time in excess of standard
- output lower than standard set because of lack of training, sub-standard materials etc.
- errors in allocating time to jobs
fixed OH expenditure favourable or adverse
favourable:
- savings in costs incurred
- more economical use of services
adverse:
- increase in costs and services used
- excessive use of services
- changes in type of service used
overhead expenditure favourable or adverse
OH expenditure variance ought to be traced to the individual cost centres where the variance occurred
fixed vol overheads
favourable:
- production or level of activity greater than budgeted
adverse:
- production or level of activity less than budgeted
