Finance Performance Help

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Registered Posts: 130 Dedicated contributor 🦉
I need help with the variances please. It just isnt sinking in and my exam is in less than 2 weeks.

Is there a way the jibberishness can be made understandable. Am trying to work through practise CBAs but I cant figure them out!

For example the CBA 2 questions to finding variances....

Budget Actual
Production 200,000 190,000
Direct M 1000ltrs 9000 1000ltrs 8500

How do I work out materials usage and price from these figures??

Standard quantity of material for actual production at the standard price

• Registered Posts: 67 Regular contributor ⭐
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beavis182 wrote: »
I need help with the variances please. It just isnt sinking in and my exam is in less than 2 weeks.

Is there a way the jibberishness can be made understandable. Am trying to work through practise CBAs but I cant figure them out!

For example the CBA 2 questions to finding variances....

Budget Actual
Production 200,000 190,000
Direct M 1000ltrs 9000 1000ltrs 8500

How do I work out materials usage and price from these figures??

Standard quantity of material for actual production at the standard price

Well first of all you need to find the standard cost and flex the budget accordingly. The standard price is what you have budgeted for one item. So one item would need 0.005 litres and £0.045

The actual production was 190,000 so you would expect it to cost £8,550. This means the total variance is £50 favourable. You would have also have expected to use 950 litres in production.

This total variance is split into two types. Price and Usage. So Price Variance + Usage Variance = Total Variance.
Price = The difference due to more expensive or cheaper direct materials.
Usage = The difference which is due to using more/less materials than planned.

So for price, compare the different prices of the materials. You can see that you budgeted £9000 for 1000 litres (£9 a litre) but have actually paid £8500 for 1000 litres (£8.50), so thats a favourable price variance of £500 (50p x 1000 litres).

The usage variance is due to you having used 1000 litres in production where as you had only planned to use 950 litres. This is an adverse usage of 50 litres. The standard price of one litre is £9, so the total adverse usage variance is £450 (9x50).

I'm not very good at explaining things but I hope this is of some help. What text book are you using to revise from?
• Registered Posts: 130 Dedicated contributor 🦉
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Hello, thanks for that, I think I am finally getting it and just going to have to do practise papers over and over until the exam next Friday and fingers crossed the CBA is similar to what I have been practising..

Am studying out of the BPP book which I find much better than the Osborne book.
• Registered Posts: 1,037 Beyond epic contributor 🧙‍♂️
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This sounds very similar to "budgeting"; if I'm doing "financial performance" after "budgeting" can I expect to zoom through financial performance because the two subjects seem similar?
• Registered Posts: 130 Dedicated contributor 🦉
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I think budgeting is very similar but not really touched on that yet but I will be doing it next after my Financial Performance exam.
• Registered Posts: 1,037 Beyond epic contributor 🧙‍♂️
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I think budgeting is the easy version of financial performance; i.e. budgeting, in an ideal world, should be done before financial performance in order to allow the student to learn the basics.

I'm quite interested to find out how similar the two are and if I'm doing financial performance straight after budgeting will this help me to get financial performance done quicker.
• Registered Posts: 130 Dedicated contributor 🦉
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You have been given the following information:

Budgeted output is 50,000 units and 10,000 labour hours
Actual output is 49,600 units and 11,000 actual labour hours

What is the fixed overhead volume variance for this? absorpted through hours? I have figured out capacity and efficiency but not the volume. Probably cuz i cant work out the absorption rate :-(
• Registered Posts: 130 Dedicated contributor 🦉
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oops, perhaps I should have done budgeting first, probably why I am finding Financial performance quite hard lol
• Registered Posts: 1,037 Beyond epic contributor 🧙‍♂️
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This looks exactly like a budgeting question; see pages 141 - 150 of the Kaplan Budgeting Book.

Anyway,

In order to calculate volume variance I think you need to:

Volume variance = Budgeted OH - Standard OH

Budgeted OH = £468,000 (as per question)

Consequently, all we need to do is calculate standard OH

Standard OH = Standard OH rate x actual output

Standard OH rate = budgeted OH / budgeted output
= £468,000 / 50,000 units
= £9.36 / unit

Actual output = 49,600 units

Consequently,

Standard OH = £9.36/unit x 49,600 units
= £464,256

Volume variance = £468,000 - £464,256