PEV Variances

fedup

Hi

Like everyone else I'm so sick of revising, I've lost count the number of times I've had to re-sit PEV. The only thing that seems to hold me back is the 'Variances' in the first section, I just cant seem to get them fixed into my brain.

I've tried loads of methods, writting them out over and over again, recording me saying them and playing it back; tried to make up sayings snd silly little ryhmes.

I've noticed alot of people have the same problem, I'am basically hoping someone has I method they use that is just plain english and simple.

Thanks

Fedup

:crying::001_unsure::crying:

definite.studies

When I was doing this, I thought a good way to remember MATERIAL VARIANCES was to think about FAIRNESS in allocating PRAISE or BLAME for the total material cost variance.

We are dealing with two separate departments here - Production who are responsible for the usage variance and Purchasing who are responsible for the price variance.

It is only fair that the Production department should be allowed to use standard prices when calculating their responsibility for any variance in the production costs, so the usage variance only changes with the quantity of material used per unit not with the actual cost.

In the case of Purchasing, they cannot control the quantity of materials used by Production so the material price variance takes the actual quantity used as a given, with the price variance being favorable or unfavorable only depending on the difference between the standard price and the actual price per unit.

Hope this helps! :001_smile:

definite.studies

For FIXED OVERHEAD VARIANCES, I think the problem can be summarised as follows:

All the calculations are fundamentally based on 3 data items, with a budgeted and actual value for each. i.e.

Fixed Overhead Cost..Budgeted Value & Actual Value

Productive Capacity....Budgeted Value & Actual Value

Output Volume...........Budgeted Value & Actual Value

The first stage in any problem is to firmly establish these 6 figures, then everything else we need to calculate is based on these figures.

We are talking about absorption costing, so the standard cost of each unit of output includes a cost representing the fixed overhead to be recovered by the sale of that unit of output. In a manufacturing example the overhead cost is included in the value of the stock, but in a service industry example the cost is only recovered when a customer buys a unit of service such as a haircut or plane journey.

The Productive Capacity is a measurement of the critical resource which is required to produce the product or service. For a factory this may be the number of worker or machine hours made available during the period, and in the service sector something like the number of appointments or plane seats available. It may help to think of Capacity as the critical input which is most directly controllable by the management of the business. Supposing Capacity is increased by 10%, then the management would expect to take all the credit when Output Volume also increases by 10% thereby increasing recovered overheads by 10%.

Supposing now that there is no increase in Capacity, but Output Volume increases by 10%, then this indicates that the critical resource is being more efficiently used. If the critical resource is production labour, then the increased efficiency results from greater Productivity. In this case, the Efficiency Variance could be thought of as a Productivity Variance with the praise going to the workers rather than the management. In the service sector the Efficiency Variance is more related how the level of demand for the service has performed relative to the capacity provided.

In most examples, the Volume variance is a combination of the capacity & efficiency variances.

The Volume, Capacity and Efficiency Variances are all calculated with reference to the budgeted fixed overhead cost, while the Expenditure Variance is just the difference in budgeted and actual costs.

Hope this helps! :001_smile:

kazseera

arrghhh im going to fail.. its soo irritating , not being abl e to remeber the stupid formulas

MrsC

I'm getting really panicky. First time sitting these exams, but I can't seem to get it all right. I'll do one paper and do it right in sect1, then do another and totally mess up sect1 but do sect 2. I'm going to do one more paper, then settle down in bed with a glass of vino and read all the past answer reports etc.

I don't think its worth doing any more practice on the maths.

Good luck tomorrow everyone.

:huh:

fedup

Well I'm pleased its over, but it didnt go well at all.

I think am going to get featured in the magazine at this rate..... "The Girl With The Most Re-Sits"

Thanks for the help everyone am sure it will just click one day, here's hoping! ha

Fedup