A Monthly Budget Variance Report For Variance Reports

A Monthly Budget Variance Report For Variance Reports: • A Positive value = Favorable (increases Net Income) • A Negative value = Unfavorable (decreases Net Income)

Variance Analysis There are two sources of Variance between BUDGETS and ACTUALS. – Spending differences • Variance due to the COST paid for resources (price or rate) • AQ (AP – SP) – Volume differences • Variance in the QUANTITY used (volume or level of activity) • SP (AQ – SQ)

The Variance Format ACTUAL QUANTITY AT STANDARD PRICE AQ x SP ACTUAL QUANTITY AT ACTUAL PRICE (ACTUALS) AQ x A P 1 STANDARD QUANTITY AT STANDARD PRICE SQ x S P 2 1 – 2 = PRICE VARIANCE AQ(AP-SP) 3 2 – 3 = QUANTITY VARIANCE SP(AQ-SQ) TOTAL VARIANCE (1 - 2) + (2 - 3) • Negative Variances are Favorable (a credit to Overhead Variance) • Positive Variances are Unfavorable (a debit to Overhead Variance) AQ = Actual Quantity or Actual Volume or Actual Hours AP = Actual Price or Actual Rate SQ = Standard Quantity or Standard Volume or Standard Hours AP = Actual Price or Actual Rate

Where is the information found? (1) Actual $$$ given on monthly Variance Analysis report (3) Budgeted $$$ given on monthly Variance Analysis report (2) Calculated by getting AQ and SP from Accounting or other source of budget information P P A Qx S Qx =A ACTUAL COSTS (PROVIDED BY ACCOUNTING) P =A ACTUAL AMOUNT OF RESOURCE AT STANDARD PRICE (CALCULATED) 1 BUDGETED COSTS (PROVIDED BY ACCOUNTING) 2 1 -2 SPENDING VARIANCE S x Q =S 3 2 -3 VOLUME VARIANCE TOTAL VARIANCE (1 - 2) + (2 - 3)

Graphical Analysis OH $$ Spending Variance due to Price (rate) Volume Variance due to activity (quantity) 2 Expected $$ @ Actual volume 1 Actual $$ 3 Budgeted $$ ce) ur o s re nit ru rce ted e g e $p ($ sou e R d Bu Budgeted Volume Actual Volume Activity Level

Full-absorption Overhead Variance Analysis OH $$ 1 Actual Applied OH $$ 2 Volume-adjusted OH $$ 3 Budgeted OH $$ Variance due to Price (rate) Variance due to Volume (quantity) D E AT OC L L A AD E RH E OV E ET G D BU x + b m Y= V DO E RH AD E Budgeted Volume Actual Volume Activity Level

Overhead Variances under Fullabsorption Costing • Variation for 2 Y = mx + b Where Y = applied overhead m = Variable Overhead rate (budgeted) x = actual quantity of overhead vehicle (i. e. hours) b = Fixed Overhead expenses (budgeted) ACTUAL QUANTITY AT ACTUAL PRICE (ACTUALS) AQ x A P ACTUAL QUANTITY AT STANDARD PRICE Y = mx + b 1 STANDARD QUANTITY AT STANDARD PRICE SQ x S P 2 1 – 2 = PRICE VARIANCE AQ(AP-SP) 3 2 – 3 = QUANTITY VARIANCE SP(AQ-SQ) TOTAL VARIANCE (1 - 2) + (2 - 3)