Chapter 5 Variance Analysis Chapter Content Budgeted Profit
Chapter 5 Variance Analysis:
Chapter Content Budgeted Profit Actual Profit Difference Variances Analysis Material Variances Labour Variances Variable Overhead Variances Fixed Overhead Variances Sales Variances
Material Variances Total Material Variance Price Variance Usage Variance
Material variances SP AQ Usage variance SP IMAS SQ Price variance AQ AP 4
Example 1 – Materials variances
Labour Variances Total Labour Variance Rate Variance Idle Time Variance Efficiency Variance
Labour Variance SH 7 SR Efficiency SR Idle timevariance AHp SR Rate variance AHp AR IMAS Ahw
Example 2 – Labour variances
Variable Overhead (V/O/H) Variances Total V/O/H Variance Expenditure (Rate) Variance Efficiency Variance
Variable overhead variance SH SR SR Expenditure variance AH AR IMAS Efficiency variance Ahw 10
Example 3 – Variable O/heads variances
Fixed Overhead (F/O/H) Variances Total F/O/H Variance Expenditure Variance Volume Variance Capacity Efficiency
Fixed production overhead total variance • The amount of overhead absorbed for each unit of output is the standard fixed overhead cost per unit. The total cost variance is therefore calculated as follows: • The difference between: (a) the standard fixed production overhead cost absorbed by the actual production (i. e. the amount of fixed overhead actually absorbed into production using the standard absorption rate), and (b) the actual fixed production overheads incurred
Fixed production overhead expenditure variance • The difference between: (a) Budgeted Fixed Production Overhead and (b) Actual Fixed Production Overhead
Fixed production overhead volume variance (Budgeted output in units - Actual output in units) multiplied by the Standard Fixed Overhead Cost per unit • Does not occur in a marginal costing environment • Can be further broken down into: • Capacity Variance • Efficiency Variance
Fixed Overhead Capacity Variance • AH x SR – Budgeted Expenditure *SR = FOAR per hour • The capacity variance measures whether the workforce worked more or fewer hours than budgeted for the period
Fixed Overhead Efficiency variance • SR x SH – SR x AH or (SH – AH) x SR • The efficiency variance measures whether the workforce took more or less time than standard in producing their output for the period
Example 4 – Fixed O/heads variances
CHAPTER 6 FURTHER VARIANCE ANALYSIS
Sales Variances Total Sales Variance Price Variance Volume Variance
Sales variances 21 Sales volume contribution variance ( Actual units sold – budgeted units to be sold ) * Standard contribution margin **Standard contribution = standard selling price/unit – standard variable cost/ unit • The Sales volume variance can be calculated as either a contribution variance as above (marginal costing principles), or in terms of profit (reflecting absorption costing principles) or even in terms of revenue Sales price variance (Actual selling price/unit – budgeted selling price/unit) * actual number of units
Example 5 – sales variances
Sales mix and quantity The sales volume variance can be analysed into • sales mix, and • sales quantity • components using the same logic encountered in regard to materials usage and labour efficiency variances.
Example – advanced sales variances
Planning variances Traditional Variance Original Standard Revised Standard Planning Variance Operational Variance Actual
Planning variances example. .
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