Variances Help :(

Clarekaye

I am not understanding variances one little bit.
Anyone got any of your own tips or hints of how to get my head around it a little? I am hoping there is just a little routine to do with x y z figures but I am lost

Thanks

Nps

I'm currently helping someone else with variances via PM, so I'll post some links to some things on here, and if you want to send me your email address, I can forward the emails with some bits on that I think you'll find helpful.

Clarekaye

Oh fab thanks! Will pm you now

Nps

This link explains how I remember the more basic variances (materials, price etc). This method certainly helped me and I still use it now.

http://forums.aat.org.uk/showthread.php?36862-Financial-Performance-question&p=264784#post264784

This link follows on from that, and explains the workings for a question.

http://forums.aat.org.uk/showthread.php?37322-Back-to-Financial-Peformance-after-a-long-time-off....

Hope it helps.

imtiaz

If you pop onto the open tuition website, select ACCA F2 (management accounting), then go to the video lectures there is a section on variances. Should be everything you need for AAT (regarding variances) right there and it is free!

Clarekaye

Nope still being a thicko

I have:

Budgeted 90,000 units
22500kg
£27000

Actual 120,000 units
34,000kg
£42500

How do you work out the total materials variance, the materials price variance and the material usage variance?

Nps

Just working it out now. First of all, have you flexed your budget to 120,000 units?

Then type out
Actual quantity x actual price =
Actual quantity x standard price =
Standard quantity x standard price =

Try and fill in as many of the blanks as you can and let me know what you get.

Clarekaye

Nope not kidding I am looking at it going I dont know what you mean by flexed, I have gone back over some level 3 stuff but its not the same, I feel so stupid.

Nps

OK, the budget was for 90,000 units but 120,000 were actually produced. You can't compare costs when different quantities are made as it is not like for like. Take the budget for 90,000 units and 'flex' it so that it is for 120,000 units. You can assume that the costs are all variable in this case so divide your material cost and material amount by 90,000, then multiply the answers by 120,000. You will then have a budget for 120,000 units which is directly comparable to the actual costs for 120,000 units.

You will then have all the detail you need to fill in the blanks in the above post.

PS You're not stupid!

Clarekaye

So i get £36000 and 30000kg for the 120,000 units,
For AQ x AP do I do 34000 x 425000
or (34000/120,000) .28 x (42500/120,000) .35?

Nps

Yes, your flexed budget is right.

AQ x AP is the easy one. Rephrase it in plain English. What is the actual price you paid for the actual amount you bought? In other words, it's the amount give in the question, £42,500.

Clarekaye

Im sorry I am all confused, I think I have it
to work out Total you take £ / units = x times this by actual units
Material price £/kg = x times this by actual units
Material usage kg/units = x times this by actual units

If thats not it I will cry...really
Thanks so much for being patient!

Nps

I'm not really sure what you mean, but I'm afraid I don't think you're right (yet. You will be, don't worry).

Stick with the format for now.

We've got AQ x AP = 42,500
Now do AQ x SP =
And SQ x SP =

AQ x SP. In plain English, it's asking, if you'd paid the budgeted/standard price per kg for the actual a amount you bought, how much would it have cost. The actual quantity was 34000kg, and the standard price was £1.20 per kg (£36000/30000kg = 1.2. These figures are all from the flexed budget). So AQ x SP = 34000 x 1.2 = 40800

SQ x SP is again fairly straightforward. What was the budgeted/standard price for the budgeted/standard quantity of materials used. In other words, what was the price shown in the flexed budget. In this case, 36000.

You now have your three lines
AQ x AP = 42500
AQ x SP = 40800
SQ x SP = 36000

Taking the top 2 lines first. Only the price has changed so the difference between the 2 answers must be the price variance. 42500-40800=1700
Taking the last 2 lines. Only the quantity has changed, so this must be the usage variance. 40800-36000=4800
The total variance is the sum of these 2 figures (or the difference between lines 1 and 3).

Are they adverse or favourable? Just look at the figures and decide if they are worse or better than the flexed budget?

Clarekaye

Price variance you times by the actual kg not the units,
I am getting the same figures as you and the £42500 your getting from the question is that correct?

Nps

You don't use the units at all. As you've flexed the budget in the first step, it's all based on the same number of units, so you can forget about them. So yes, price variance is asking what you actually paid compared to what you thought you would pay (based on the materials you actually used).

And yes, the 42,500 is given to you in the question. Once you've flexed the budget, the only figure in the three lines which you actually need to calculate is AQ x SP.

Try doing the question in the 2nd link I posted above. Honestly, it will just click once you've done a few questions.