FAO Sandy Hood
imeldabye
WellKnownRegistered Posts: 147
Hi Sandy
Sorry to bother you again but I have been working through the past papers and have come unstuck with exchange rate variances and how to work out the sub variances. Do you have an easy formula? I understand the concepts behind them but once I try and work out the exchange rate ones I never get the figures right. I find it easiest to apply a Step 1...Step 2... approach but there are so few examples of this in the revision kit, and it came up Dec 2005 PEV.
THanks in advance...:001_smile:
Sorry to bother you again but I have been working through the past papers and have come unstuck with exchange rate variances and how to work out the sub variances. Do you have an easy formula? I understand the concepts behind them but once I try and work out the exchange rate ones I never get the figures right. I find it easiest to apply a Step 1...Step 2... approach but there are so few examples of this in the revision kit, and it came up Dec 2005 PEV.
THanks in advance...:001_smile:
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Comments

or if anyone else could help.............?!0

Step One Establish what the exchange rate is that you want
I gather that as I am writing 1 Euro is worth £0.7151
If you wanted to know what £1 is worth then divide the 1Euro by the £0.7151 i.e. 1.40 Euros = £1
Step Two If you have a standrd price of £50 per kg in £s set at the beginning of the year when 1.25 Euros =£1 you may wish to adjust it to take account of the rise in the value of the £1.
Divide by the value of £1 in Euros at the beginning of the year and multiply by the value of £1 at the time of the purchase.
When 1.25 Euros =£1, 1 Euro = £0.80
So £50 divided by £0.80 multiplied by £0.7151 will give you a revised cost per kilogram. £44.69 to the nearest penny.
So to sum up make sure you know whether to use the Euro to £ or £ to Euro rate
 Then divide by the rate at the time the standard was set
 Then multiply by the rate at the time the raw materials were purchased
Now you have a revised standard cost per kg
The part of the material price variance due the change in the exchange rate is found by (Original price  Revised price) x amount purchased
The part of the price variance due to the hardwork or otherwise of the purchasing department is (Revised price x amount purchased)  actual amount spent
or  (Revised price per kg  actual price per kg) x amount purchased
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Many thanks. This is a real help.0