Variance HELP FOR YOU

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I found this and have coloured it for ease of use!

VARIANCES

Material Price Variance
Basically the difference between the price they paid for what they used, and the price they should have paid (using the standard/Budgeted Cost) for the actual quantity.

ie. A nail (Hammer and Nail!!) Standard Cost is £3, they bought 4 Nails for £10. The Material Price Variance is then - (4x£3) - £10 = £2 Favourable. It's favourable because they paid less than they should have

Material Usage Variance
Basically the difference of how much material/units they should have used and how much they did use, you then times this by the standard cost per unit.

ie. A Box of Nails Should Contain 100 Nails, in production of making 1 box they used 110 Nails, the material usage variance is (100-110) x £3 = £30 Adverse. This is adverse because they used more than they should have. Remember to multiply the difference by the STANDARD cost of the unit.

Labour Price Variance
Basically the same as Material Price Variance, the difference between how much labour should have cost and how much it did.

ie. A employees standard labour rate £5, they spent £16.50 on three labour hours. The formula is (3x£5) - £16.50 = £1.50 Adverse, it's adverse because they spent more than they should have

Labour Usage Variance
Basically The same as material usage variance, how many hours they should have spent on labour, and how many they did. At the Standard Rate!!

ie. An employee makes 10 boxes of nails in an hour, 50 Boxes of nails were made in 7 hours. It should have taken the employee 5 hours, therefore the formula is (5-7) x £5 (Standard Cost) = £10 Adverse (Because they spent more than they should have!

Budgeted Costs of FO - Actual Costs of FO - Nice and Simple!

ie. Budgeted Costs for Fixed Overheads were £100,000, they actualy spent £108,000. Therefore 100,000-108,000= -8000, it's adverse because more was spent than planned.

Absorption Rate x (Standard for Actual Output - Budgeted Output)

The absorption rate in normally stated in the exams, it is important to look whether it's units based or hours based, and then the bits inside the brackets will be the same, the formula's below work on the same principal.

Absorption Rate x (Standard for Actual Output - Actual Taken)

Absorption Rate x (Actual Taken - Standard Hours for Budgeted Output)

The best tip for fixed overhead is to make sure that the Capacity Ratio + Efficiency Ratio = Volume Ratio (Remember one, or both the numbers might be negative)

I know it's posted elsewhere, but thought it may be useful as a separate thread too!

Happy revising!

Anna
FMAAT - AAT Licensed Member in Practice - Pewsey, Wiltshire

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Can someone post an actual number example of the overhead variances and how they differ between being based on labour hours or units?

I keep getting confused between them!!
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aimeexox wrote: »
Can someone post an actual number example of the overhead variances and how they differ between being based on labour hours or units?

I keep getting confused between them!!

Try this link for a worked out example

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sdv wrote: »
Try this link for a worked out example

FMAAT - AAT Licensed Member in Practice - Pewsey, Wiltshire
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anniem wrote: »

I have edited the post

try again
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fab post
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This might help some of those who've posted about variances today.

Anna
FMAAT - AAT Licensed Member in Practice - Pewsey, Wiltshire
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upped as it's useful
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Reasons for variances

this might be useful too?
Material Price Variances can be due to:
Bulk discounts
Different Suppliers
Different Materials
Unexpected Delivery costs

Material Usage Variances can be due to:
Different quality material
Theft, obsolescence, deterioration
Different Quality of staff
Different mix of material
Different batch sizes and trim loss

Labour Rate Variances can be due to:
Different class of labour
Excessive overtime
Productivity bonuses
National wage negotiations
Union action

Labour Efficiency Variances can be due to:
Different levels of skill
Different working conditions
Lack of supervision
Working to rule
Machine breakdowns
Lack of material
Lack of orders
Strikes (if paid)
Long coffee breaks!

Overhead Expenditure variance can be due to:
Unforeseen price changes

Overhead Volume Variance can be due to:
Excessive idle time
Increase in workforce
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awsome!
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FMAAT - AAT Licensed Member in Practice - Pewsey, Wiltshire
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anniem wrote: »

Great thanks Anna! Howz things aint seen you around on here for a while?

x
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i was gonna say "jewels is going to love you for that"!!!
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Marga wrote: »
i was gonna say "jewels is going to love you for that"!!!

Yeah she does! Cant wait to here from you when you have looked at your books. You are gonna love them Marga..............................NOT!!! lol
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jewels.p wrote: »
Yeah she does! Cant wait to here from you when you have looked at your books. You are gonna love them Marga..............................NOT!!! lol

oh well to be honest couldnt wait till the weekend so i went in yesterday and started MAC unit 1 , the introduction about management accounting, SWOT, PEST and them lot

ready to tackle the second unit today
• Registered Posts: 1,774
Marga wrote: »
oh well to be honest couldnt wait till the weekend so i went in yesterday and started MAC unit 1 , the introduction about management accounting, SWOT, PEST and them lot

ready to tackle the second unit today

Are you in amongst the Variances yet?.............................now see if you come on here and say that you find it really easy..............................well JUST DON'T!!! lol
• Registered Posts: 981
jewels.p wrote: »
Are you in amongst the Variances yet?.............................now see if you come on here and say that you find it really easy..............................well JUST DON'T!!! lol

lol i dont even know which chapter is that one i kind of over looked at the whole thing and i am really wanting to get to the trend analysis time series and linear regression ...

once i get to the variances i will say they are very difficult lol
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Marga wrote: »
lol i dont even know which chapter is that one i kind of over looked at the whole thing and i am really wanting to get to the trend analysis time series and linear regression ...

once i get to the variances i will say they are very difficult lol

You say you did Chapter 1 well that's it you are now onto Standard Costing and Variances. Chapters 2,3 and 4 cover it and I have already read it twice and you probably know more than me! lol
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ok just started Chapter 5 VAriances

will let you know how i get on

first thing i did was to print the help that Anna gave us and the PEV example

also if it helps i have the Kaplan books
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bumped up - found this and thought its a brilliant thread and might be needed
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