general question - financial performance

Kelly7

Hi all

I have had a few problems since starting my level 4 but financial performance really seems to be causing me problems. I cant seem to make sense of or understand the variances which is prkbs the main problem but there seems many little things that are thrown in

if anyone has any way of remembering the different variances or way to think / approach them id be willing to give anything go and grateful for any nelp.

Any help on any other areas of this module / tips / approaches / anything would be very gratefully received.

thank you in advance for anything.

Kelly xxxxx

topcat

Hi Kelly,

This post by NPS really helped me you may want to have a look at the whole thread so it makes more sense

http://forums.aat.org.uk/forum/for-student-members/student-discussion/technician-diploma/39068-ahhh-material-price-usage-variance

"First of all you need to flex your budget so that you are working with the same quantities. Also work out how much your budget expects you to pay for each metre. You can then forget the original budgeted figures.

From the flexed budget and your actual figures (which are now comparing like for like), you should be able to fill in the blanks of the following table...

Actual quantity x Actual price (AQxAP) = this is easy, it's just what the company actually paid for what they actually bought (so taken from the question)
Actual quantity x Standard price (AQxSP) = this is the quantity actually used but assuming they paid the budgeted price for it (this is the only figure you actually need to work out, the other 2 figures are taken directly from your flexed budget and the question)
Standard quantity x Standard price (SQxSP) = the expected cost from the flexed budget.

You will see that in the first two lines, only the price has changed (AQxAP and AQxSP) therefore the difference in these 2 answers must be your price variance.
In the bottom 2 calculations, only the usage has changed (AQxSP and SQxSP) so the difference in these 2 answers is the usage variance.
Adding the 2 answers gives you your total variance (or the difference between lines 1 and 3)

As I say, you will either love this method or hate it (more seem to love it though). I haven't done variances for a long time and wouldn't have a clue if I was asked to remember the official formula for them. However, for this method, you don't need to remember the formula and it should become quite clear how the calculations are giving you the answers, therefore you remember it many months later. You can also use this method for some other variance calculations too.

I'll leave you to actually put the figures in to see if you come up with the same answer, and I'll also leave part 2 for you to practice on using exactly the same method. I've also posted the answers to some other similar questions using this method, so just search through my previous posts if you want more practice. I'll keep checking back in case you want me to clarify anything."