Pev - understanding of formulas

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Jentel
Jentel Registered Posts: 60 Regular contributor ⭐
Hi

I will try to keep this short.

Simply - i know the formulas but can some one confirm my understanding of them.

Price variance
AQ x (SP-AP)
AQ = Actual Quantity of material purchaced
SP = Standard Price set for the cost/purchase of the material
AP = Actual Price cost of the material purchased

Usage Variance
SP x (SU-AU)
SP = same as earlier
SU = Standard Usage, being the amount of material that was issued from stores for actual production at the standard price.
AU = Actual Usage, being the actual amount of material used in production at the standard price.

Once i know this is ok then it will help with certain questions

Thanks in advance

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  • michaelar25
    michaelar25 Registered Posts: 12 New contributor 🐸
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    I am stuck on the exact same thing in my revision and its really annoying me, iv been taught to learn mine like this

    Actual Qty x Actual Price =
    Price Variance
    Actual Qty x Standard Price =
    Usage variance
    Standard Qty x Standard Price =

    But my answers dont seem to be matching up to the answers in the book :-(
  • mrspnut
    mrspnut Registered Posts: 70 Regular contributor ⭐
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    Are you adjusting the standard quantity for the actual production? because I sometimes forget to do that and only realise when my reconcilliation doesn't balance.
  • EAP
    EAP Registered Posts: 63 Regular contributor ⭐
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    S for Should

    I don't know if this helps, but here is how I remember it:
    S for Standard, S for Should've, so:
    Standard Price is the price you should've paid,
    Standard Usage (or Standard Quantity) is the amount you should've used (for the actual output you produced)
    Standard Cost is the amount it should've cost (for the actual output produced.)
  • twinmeister
    twinmeister Registered Posts: 122 Dedicated contributor 🦉
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    We've been taught:
    PAUS
    Price variance use
    Actual quantities
    Usage variances use
    Standard costing

    Direct material price variance is therefore AQSC - AQAC using actual production unit
    Direct material usage variance is therefore SQSC - AQSC using actual production units

    SQ = quantity of material you would expect to use for actual production
    AQ = actual quantity of material used
    SC = what you budgeted to pay per unit of material
    AC = what you actually paid per unit of material

    I consistently got answers wrong early on in my revision because I kept using budgeted production units instead of actual production units, so what I do now is write out a standard cost card for one unit, which seems to help me.
  • EAP
    EAP Registered Posts: 63 Regular contributor ⭐
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    OK - this looks similar to what I've learned but what you call SC - Standard Cost, i call SP - standard price. So my formulas are:
    Price variance: AQ x SP - AQ x AP
    Usage variance: SQ x SP - AQ x SP
    another thing I use when my brain turns to jelly is to remember that, for a price variance you fix the quantity and look at the difference in price (so AQ and AQ) and for the usage variance you fix the price and look at the difference in quantity (so SP and SP - or SC and SC in your case)
    but maybe I'm just confusing you now!
  • twinmeister
    twinmeister Registered Posts: 122 Dedicated contributor 🦉
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    I understand you completely EAP!
  • EAP
    EAP Registered Posts: 63 Regular contributor ⭐
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    My tutor was useless at teaching this - he just wanted us to learn the formulas, so I sat and worked through this until my head hurt but I think I have finally got it. I wish I'd gone on the forums before as there is loads of useful stuff. I have to admit though, I am looking forward to never having to think about variances again!
  • twinmeister
    twinmeister Registered Posts: 122 Dedicated contributor 🦉
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    Our tutor completely flummoxed us with this too, using a graph.

    Like you, I only really understood when I started revising and worked it out myself. Are you sitting PCR too? I haven't even started revising that yet!
  • EAP
    EAP Registered Posts: 63 Regular contributor ⭐
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    I'm doing PEV Monday, BTC Tuesday and PCR Wednesday. PEV I think will be OK, PCR is touch and go, and BTC I am trying not to care about coz I don't actually need it but deep down I can't bear the idea of failing it all the same.
    What about you?
  • twinmeister
    twinmeister Registered Posts: 122 Dedicated contributor 🦉
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    PEV Monday PCR Wednesday. Ducked out of Tax, so don't envy you that timetable. Good luck. Any tips for PCR revision?
  • EAP
    EAP Registered Posts: 63 Regular contributor ⭐
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    Do the last paper Dec 2009 first. It has opening and closing stocks of materials as well as opening and closing stocks of finished goods, so it's a pig of a paper but at least it won't freak you out if it comes up in the exam.
    June 07 paper is a right can of worms, I'd be tempted to say avoid it all together. From the forums it seems like they changed the model answers a few times! It's section 1 that's the problem - they ask you to do an operating statement, but don't ask for opening or closing stocks (although apparently the original model answers did show opening and closing stocks). Nightmare!
    Good luck for next week anyway!
  • Jentel
    Jentel Registered Posts: 60 Regular contributor ⭐
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    I am stuck on the exact same thing in my revision and its really annoying me, iv been taught to learn mine like this

    Actual Qty x Actual Price =
    Price Variance
    Actual Qty x Standard Price =
    Usage variance
    Standard Qty x Standard Price =

    But my answers dont seem to be matching up to the answers in the book :-(

    Is it the Osbornes books - if you let me know what task then i will see if it works using my formulas and then i'll see if i can help you to use the formulas my way. To be honest i find it very difficult to work with any new versions given to me as i find mine works all the time. I actually use what twinmeister said PAUS and that works for me.
  • Jentel
    Jentel Registered Posts: 60 Regular contributor ⭐
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    I have just seen this from another thread and thaugh to post it here. I think it might just help us. Its been answered by Sandy Hood who is a PEV teacher so he knows his stuff.





    #1 09-06-10, 19:57
    sorcha
    New Member Join Date: Nov 2009
    Posts: 9


    Standard v budgeted costs - what's the difference


    Please, please can someone explain the difference between these two when calculating costings in MAC Unit 33


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    #2 09-06-10, 22:15
    SandyHood
    Well known Join Date: Nov 2007
    Posts: 1,073





    Budgeted costs are the standard costs of the planned output
    Standard cost of actual production is the standard cost of the actual output

    Standard cost of kgs purchased is the standard cost of 1 kg x the actual kgs purchased
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