Variance analysis

System

My teacher says that she is a facilitator and if we don't understand something she will not re-teach us, and i am stuck on variance analysis. The sheet she has given us with the formulas on doesn't equate with whats in the book, can anybody help :!: :?:

System

Re:Variance analysis

sianharry2 I think my view is a minority, but I am sticking with it because I think I'm right!!

If that sounds too big headed then you don't need to read the rest of this response.

Variances are not synonymous with formulae

This is a copy of something I sent to a recent email enquirer about variances.

I think you need to think about WHY we need to find out the variances, and if you can figure out how they can be useful in controlling costs in a business you are familiar with then you can move on to look at other businesses.

Here is my example:


Say that MacDondalds had a hamburger with the following standard requirements

Food 250 grams

Cooking time etc 6 minutes

Then, I'm pretty sure you could tell me
1. How much food would be needed if we sold 1000 hamburgers?
And
2. How many hours (or minutes if you prefer) we should need for 1000 hamburgers?
And if I told you that we actually used 300 kilograms (300,000 grams)
you would be able to tell me how much the usage was more (or less) than we should have used

And if we had 90 hours (or 5,400 minutes) worked you would also be able to tell me if our workers had been more (or less) efficient than they should have been, and what the difference in hours was.

3. Now if I tell you the standard cost for 1 kg (1000 g) is £5.00, you may well tell me the value of the material usage variance

4. And if the standard labour rate is £6.00 per hour, you may well be able to tell me the value of the labour efficiency variance.

And hopefully, you would be able to visualise a MacDondalds kitchen where this has taken place.



sandy.hood@chichester.ac.uk

System

Re:Variance analysis

Once you see where the material usage and labour efficiency variances come from, you can think about the variances due to the price we paid.

The food used to make the hamburgers cost £1,200 and the staff wages came to £585

Find the variance for the price paid per gram (or kg)
the difference between how much the standard would expect it to cost for the 300,000grams we used and how much it really cost
And
The variance for the wage rate paid to the staff
the difference between how much the standard would expect it to cost for the 90 hours worked and paid and how much it really cost