HELP PLS - sandy hood

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
please can you explain what backward variances are???

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    HELP PLS - sandy hood

    If you are given a report that shows the material price variance and the material usage variance, you can then go back from the actual material cost to find the budgeted cost.<BR><BR>
  • System
    System Posts: 100,534 🤖 Admin 🤖
    HELP PLS - sandy hood

    How well do you understand variances?<BR><BR>Can you visualise raw materials being used to make finished products at a predetermined standard input and a standard price per kg of that input?<BR><BR>If I tell you that the results for last month show that the actual cost of materials was <b> £91,520 for 20,800 kgs</b> and that the material usage variance was <b>£5,200 adverse</b> and the material price variance was <b> £8,320 adverse</b> <BR><BR>You should be able to calculate (a) the standard cost of the actual output.<BR><BR>And (b) the standard cost of 1kg of raw material<BR><BR>And then if I told you that we produced 6500 units<BR><BR>You should be able to work out (c) how many standard kg of material are needed per unit
  • System
    System Posts: 100,534 🤖 Admin 🤖
    HELP PLS - sandy hood

    <br><br><< <i>(a) the standard cost of the actual output.<BR><BR>(b) the standard cost of 1kg of raw material<BR><BR>(c) how many standard kg of material are needed per unit</i> >><br><br><BR><BR>(a) £78,000<BR><BR>(b) £4<BR><BR>(c) 3kg<BR><BR>
  • System
    System Posts: 100,534 🤖 Admin 🤖
    HELP PLS - sandy hood

    I often read gripes on the various message boards after the exams<BR><BR>Please make sure you really understand the subject you are being tested on rather than being able to answer the same sort of question that has been asked before.<BR><BR>Doing variances should be in the context of the business. Examiners don't like rote learned formulae and will test to be sure that you really understand what you are writting about.<BR><BR>Backward variances should be no more difficult than any other, but will let you show the examiner that you understand how variances are calulated and can reverse the process to find figures such as those in my example.<BR><BR>The PEV examiner works very closely with the unit standards (not any text book or manual) and you can be very sure that whatever appears in the exam will be a requirement of your understanding as far as the standards for the unit are concerned.<BR><BR><a target=new class=ftalternatingbarlinklarge href="mailto:sandy.hood@chichester.ac.uk">sandy.hood@chichester.ac.uk</a>
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:HELP PLS - sandy hood

    Here is another example:-

    The materials purchased cost:- £3,838,000
    all were issued to production
    the material price variance was £479,750 favourable
    the material usage variance was £42,750 adverse

    How much should the materials we bought have cost at standard price?

    Actual cost plus (because we paid less than the standard) the favourable price variance

    If we bought 9,595 kilogrammes, how much is the standard cost per kilogramme?

    the standard cost of the 9,595 kilogrammes divided by 9,595

    How much was the standard cost of what we produced?

    the standard cost of the 9,595 kilogrammes less (because the usage variance is adverse) the usage variance

    If we actually produced 190,000 units, what is the standard amount of kilogrammes per unit?

      the standard cost of what we produced divided by the standard cost per kilogramme to find the standard number of kilogrammes for the actual production
      then divide this by the 190,000 units we actually produced to find the standard amount of kilogrammes per unit



    What this does is to find out cost information if you know some key facts and the variances already. You effectively work backwards.

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