Variance Analysis

Re:Variance Analysis

Chucky

Variances do generate interest from a lot of students, and will no doubt lead to many different pieces of advice.

If this works for you then I will be very pleased. If it doesn't then feel free to look at other approaches.

Amongst variance analysis I like my students to find one or more aspects that relate to them at work. So think about where you work and relate it there if you can.

I would recommend not learning formulas, that makes the subject schooly and doesn't help you to relate to your own workplace.

In MacDonalds customers buy Big Macs. If we were the accountants we would look at the till report and see precisely how many Big Macs had been sold today, and would know that every Big Mac should have 2 4oz beef patties in it. So if we sold 120 Big Macs the standard amount of patties should be 240. If 250 were used we would have an adverse variance worth 10 patties at the standard cost of a pattie, say £0.30. Ie Material usage variance £3.00 adverse.

As it happens we bought 250 patties today and paid £70.00. At standard 250 patties should cost £75.00 (250 x £0.30). So we have a material price variance of £5.00 favourable.

Does that help?

sandy.hood@chichester.ac.uk

Re:Variance Analysis

Hi,

This is the way that I remembered the Variances
Material Price Variance (MPAAAS)
Actual Material Qty x Actual Material Price x
Actual Material Qty x Standard Material Price(x)
MATERIAL PRICE VARIANCE XX(A/F)

*** Use Quantity PURCHASED ***

Material Usage Variance (MUASSS)
Actual Material Qty x Std Material Price x
Standard Material Qty x Std Material Price (x)
MATERIAL USAGE VARIANCE XX (A/F)

*** Use Quantity USED ***

Labour Rate Variance (LRAAAS)

Actual Labour Hrs x Actual Labour Rate/Hr x
Actual Labour Hrs x Standard Labour Rate/Hr (x)
LABOUR RATE VARIANCE XX (A/F)


Labour Efficiency Variance (LEASSS)

Actual Labour Hrs x Std Labour Rate/Hr x
Strd Labour Hrs x Std Labour Rate/Hr (x) LABOUR EFFICIENCY VARIANCE XX (A/F)


Volume Variance (VVAB)
Actual Units x
Budget Units ( x )
X
x BOAR/ Labour or Machine Hour xx
XXX

Efficiency Variance (EVABauh)
Actual Hours x
Budget Hours ( x ) (Actual Units x Budget Hours) X
x BOAR xx
XXX

Capacity Variance (CVABbuh)
Actual Hours x
Budget Hours ( x ) (Budget Units x XX Hours)
X
x BOAR xx
XXX

Right I hope all of these come out ok. If not then PM me and I will send them to you again. Now, if you look at the 1st varaince ie Material Price, what I do is anytime I have to do a Variance for this i write Material Price Variance (MPASSS), the MP for Material Price, the A for Acutal MP, and the S's for the Standard (Budgeted Rates) therefore it is MP=(A x S) - (S x S). This just helped me remeber them in the exams (I even wrote MPASSS etc, beside the questions in the reading time!)

The BOAR is the Overhead Absorption Rate, but because you always use the Budgeted figure, I call it BOAR.

Also what I used to do is if I was given the total figure for the Actual Material Cost, then when i did the MP Variance, I would put the total in, the quantity purchased, and I would still work out the price/kg, as this helped when working out if the amount was Adverse or Favourable. And hey if it works then who cares, but also remember, you do get marks for workings and the more you show the more chance of getting some marks, every half mark counts.

Ok enough of the info overload PM me if you need me to email the proper version of the above.

I hope this helps you.

Good Luck

Re:Variance Analysis

hi Chucky

Is there any chance you can email me this please on kellymartinson@ntlworld.com

Some of it was sinking in and im doing a retake in june so any notes or words of wisdom would be great