Financial Performance Variance

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Registered Posts: 60 Regular contributor ⭐
I have my Financial Performance exam very soon (last one) and I wondered if anyone had any tips for remembering the variance calculations? I am fine with everything else in this unit but keep having to look back at the workings to calculate the variances on the questions especially the fixed overhead ones. I just can't get them to sink in! Any help would be much appreciated. Thanks in advance!

• Registered Posts: 2,525 Beyond epic contributor 🧙‍♂️
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Hello

I'm still studying this unit and have just covered variances so am trying to get them 'set in stone' in my mind ready for the exam. However in answer to your post, my tutor advised that rather than learn the formula by rote try to apply an example to each and try to recall those in the exam. I know that rote learning is sometimes seen as necessary however I think what my tutor suggested was a very good suggestion and I hope to be able to apply this over the coming weeks before my exam.

JC
~ An investment in knowledge always pays the best interest ~
Benjamin Franklin
• Registered Posts: 179 Beyond epic contributor 🧙‍♂️
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I did my exam on 10th Jan and am I yet to receive my results however I used flash cards and wrote the formula for the labour variance on one, material variance on another and the fixes overheads on another etc. I don't know whether I passed or failed yet but here's how I learnt them: breaking them down.

Expenditure Variance is straight forward:

Volume Variance:

Budgeted overhead (budgeted production x hrs per unit x standard rate)
-
Actual production x hrs per unit x standard rate

Capacity variance

Budgeted Overhead (budgeted production x hrs per unit x standard rate)
-
Actual hrs worked x standard rate

Efficiency Variance

Actual hrs worked x standard rate -
Standard hrs for Actual production x standard rate.

I hate to say it but you just have to go over and over them.

Thanks

Steph
• Registered Posts: 60 Regular contributor ⭐
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• Registered Posts: 39 Regular contributor ⭐
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It took me ages to get this. I used:

A=Actual
B=Budget
S=Standard

Qty £
A - B
A - AxB
AvB - AxBxStd

The Fixed Overhead one was horrible and I used:

Expenditure = AxA - BxB
Volume = BxB - SxB
Capacity = BxB - AxB
Efficiency AxB - SxB

The key to this is that you cannot calculate the Efficiency unless you are given the Direct Labour Hours

It probably makes no sense but I eventually got it, the key is to do a standard cost card