Variance HELP FOR YOU
anniem
Registered Posts: 1,326 Beyond epic contributor 🧙♂️
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!
FIXED OVERHEAD VARIANCES
Fixed Overhead Expenditure Variance
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.
Fixed Overhead Volume Variance
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.
Fixed Overhead Efficiency Variance
Absorption Rate x (Standard for Actual Output - Actual Taken)
Fixed Overhead Capacity Ratio
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
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!
FIXED OVERHEAD VARIANCES
Fixed Overhead Expenditure Variance
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.
Fixed Overhead Volume Variance
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.
Fixed Overhead Efficiency Variance
Absorption Rate x (Standard for Actual Output - Actual Taken)
Fixed Overhead Capacity Ratio
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
0
Comments
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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!!0 -
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fab post
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This might help some of those who've posted about variances today.
AnnaFMAAT - AAT Licensed Member in Practice - Pewsey, Wiltshire0 -
upped as it's useful0
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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
Different buying procedures
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:
Change in nature of overhead
Unforeseen price changes
Overhead Volume Variance can be due to:
Excessive idle time
Increase in workforce0 -
awsome!0
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Jewels - thought this may help you! xFMAAT - AAT Licensed Member in Practice - Pewsey, Wiltshire0
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i was gonna say "jewels is going to love you for that"!!!0
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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 today0 -
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!!! lol0 -
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 lol0 -
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! lol0 -
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 books0 -
bumped up - found this and thought its a brilliant thread and might be needed 0
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brilliant thread0
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