Variance Analysis

COPYRIGHT © 2010 BY Mohammad Faizan Farooq FFQA 136
VARIANCE ANALYSIS
The application of standard costs for budgetary control purposes. The standard is
compared to the actual result the difference being the variance. The analysis
provides the following information:
1. Cost control.
2. Reconciliation between Budgeted and Actual Profit (or Contribution or cost).
3. Variances may quantify the value of a known difference.
4. Performance Appraisal.
VARIANCE FORMULAS
Direct Material Cost Variance
Direct Material Total Variance $

Standard (Actual Units x Standard Material Cost per Unit) xxx
Actual Cost (xx)
Total Direct Material Total Variance xxx
Direct Material Price Variance $

Standard (Actual kg purchased x Standard Cost per kg) xxx
Actual Cost (xx)
Total Direct Material Price Variance xxx
Direct Material Usage Variance

Standard (Actual Units x Standard Material Required in a Unit) xxx kgs
Actual kgs used (xx) kgs
Total Direct Material Usage Variance in kg xxx kgs
X standard rate per kg $x /kg
Total Direct Material Usage Variance in $ xxx
Prepared & Complied by: Mohammad Faizan Farooq Qadri Attari

ACCA (Finalist)
http://www.ffqacca.co.cc
Contact: faizanacca@yahoo.com
Direct Labour Cost Variance
Direct Labour Total Variance $

Standard (Actual Units x Standard Labour Cost per Unit) xxx
Actual Cost (xx)
Total Direct Labour Total Variance xxx
Direct Labour Rate Variance $

Standard (Total Actual hrs x Standard Cost per hrs) xxx
Actual Cost (xx)
Total Direct Labour Price Variance xxx
Direct Labour Efficiency Variance

Standard (Actual Units x Standard Labour Required in 1 Unit) xxx hrs
Actual hours worked (xx) hrs
Total Direct Labour Usage Variance in hrs xxx
X standard rate of labour per hrs x/hr
Total Direct Labour Usage Variance in $ xxx

ACCA (Finalist)
Variable Overheads Cost Variance
Variable Overheads Total Variance $

Standard (Actual Units x Standard Variable Cost per Unit) xxx
Actual Cost (xx)
Total Variable Total Variance xxx
Variable Overheads Expenditure Variance $

Standard (Actual hrs worked x Standard Cost per hrs) xxx
Actual Cost (xx)
Total Variable Expenditure Variance ` xxx
Variable Overheads Efficiency Variance

Standard (Actual Units x Standard hrs Required in 1 Unit) xxx hrs
Actual (xx) hrs
Total Variable Efficiency Variance in hrs xxx hrs
X standard rate of Variable Overhead per hrs x/hr
Total Variable Efficiency Variance in $ xxx

ACCA (Finalist)
Sales Variance
Sales Price Variance

( Budgeted Selling Price per unit - Actual Selling Price per Unit ) x Actual Sales Units
Sales Volume Contribution Variance

Budgeted Sales Volume xxx
Actual Sales Volume xxx
Sales Volume Variance in Units xxx
X Standard Contribution per unit $x/unit
Sales Volume Contribution Variance in $ xxx
Sales Volume Profit Variance

Budgeted Sales Volume xxx
Actual Sales Volume xxx
Sales Volume Variance in Units xxx
X Standard Profit per unit $x/unit
Sales Volume Contribution Variance in $ xxx

ACCA (Finalist)
Fixed Overheads Cost Variance
Fixed Overhead Total Variance $$

Standard [(Budgeted Overhead $ /Budgeted Activity) x Activity Level] xxx
Actual (xx)
Fixed Overhead Total Variance xxx
Fixed Overhead Expenditure Variance $$

Budgeted Fixed Overheads xxx
Actual Fixed Overhead (xx)
Total Variable Expenditure Variance xxx
Fixed Overhead Volume Variance

Budgeted Units xxx Units
Actual Units (xx) Units
Total Fixed Overhead Volume Variance in Units xxx
Standard Fixed Overhead per Unit x/unit
Total Fixed Overhead Volume Variance in $ xxx
Fixed Overhead Volume Capacity Variance

Budgeted hours xxx hrs
Actual hours xxx hrs
Capacity Variance in hours xxx hrs
X Standard fixed overhead absorption rate per hour x/hr
Fixed overhead Capacity Variance in $ xxx
Fixed Overhead Volume Efficiency Variance

Standard (Actual Units x How many hours 1 unit required) xxx hrs
Actual xxx hrs
Fixed Overhead Efficiency Variance in Hours xxx hrs
X standard fixed overhead absorption rate per hour $x/hr
Fixed Overhead Efficiency Variance in $ xxx

ACCA (Finalist)

ACCA (Finalist)
OPERATING STATEMENTS

ACCA (Finalist)

ACCA (Finalist)
QUESTION FFQA1
The standard cost and price for one unit being as follows:
Direct material A - 8 Kilograms at £13 per Kg 104
Direct material B - 5 Kilograms at £6 per Kg 30
Direct wages - 6 hours at £6 per hour 36
Fixed production overhead – 6 hours at £10 per hour 60
Standard gross profit 50
Standard Selling price 280
The fixed production overhead included in the standard cost is based on an

expected monthly output of 800 units. Overheads are absorbed using direct labour
hours.
During Sept 2008 the actual results were as follows:
Sales 780 units @ £300 234,000

Direct Materials: A: 7,500 Kg 91,500
B: 3,500 Kg 20,300
Direct Wages 3,400 hours 27,880
Fixed production overhead 37,320
177,000
Gross Profit 47,000
Required
Reconcile budgeted profit with actual profit for September

ACCA (Finalist)
QUESTION FFQA2
Mortensen plc manufactures wooden toys. It uses a standard costing system to control
costs. The cutting department cuts the shapes which are sold as toy animals. The
process is very labour intensive and requires highly skilled labour to minimise the
wastage of the expensive hardwood used.
The standard cost card for a set of toy animals is given below.
Hardwood 0·1 cubic metres at £160 per cubic metre = 16·00
Direct labour 30 minutes at £9 per hour = 4·50
Fixed overhead 30 minutes at £4 per direct labour hour = 2·00
Fixed overhead absorption rates are based upon budgeted monthly fixed overheads of
£26,000 and a budgeted monthly output of 13,000 sets of animals.
All stocks are recorded at standard cost.
In the most recent month 14,000 sets of animals were made using 1,600 cubic metres of
hardwood. Purchases for the period were 1,800 cubic metres of hardwood at £150 per
cubic metre. 8,000 direct labour hours were worked
and paid at £9·25 per hour. Actual fixed overheads were £23,000 for the month.
Required:
(a) Calculate the following variances from standard cost for the most recent month:
(i) Raw material price
(ii) Raw material usage
(iii) Labour rate
(iv) Labour efficiency
(v) Fixed overhead expenditure
(vi) Fixed overhead volume
(vii) Fixed overhead capacity
(viii)Fixed overhead efficiency

ACCA (Finalist)
If someone found using my
COPYRIGHT © material by naming Faizan
2010 BY Mohammad it as creator
Farooq of it or tried amending or altering
FFQA will146
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according to the Copyright Law of Pakistan & DMCA
Advanced
Variance
Analysis
If someone found using &

Prepared myComplied
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by: it as creator
Mohammad of it Farooq
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COPYRIGHT © 2010 BY Mohammad Faizan Farooq FFQA 136

Direct Material Total Variance $

Direct Material Price Variance $

Direct Material Usage Variance

Prepared & Complied by: Mohammad Faizan Farooq Qadri Attari

Direct Labour Cost Variance

Direct Labour Total Variance $

Direct Labour Rate Variance $

Direct Labour Efficiency Variance

Prepared & Complied by: Mohammad Faizan Farooq Qadri Attari

Variable Overheads Cost Variance

Variable Overheads Total Variance $

Variable Overheads Expenditure Variance $

Variable Overheads Efficiency Variance

Prepared & Complied by: Mohammad Faizan Farooq Qadri Attari

Sales Price Variance

Sales Volume Contribution Variance

Sales Volume Profit Variance

Prepared & Complied by: Mohammad Faizan Farooq Qadri Attari

Fixed Overheads Cost Variance

Fixed Overhead Total Variance $$

Fixed Overhead Expenditure Variance $$

Fixed Overhead Volume Variance

Fixed Overhead Volume Capacity Variance

Fixed Overhead Volume Efficiency Variance

Prepared & Complied by: Mohammad Faizan Farooq Qadri Attari

Prepared & Complied by: Mohammad Faizan Farooq Qadri Attari

Prepared & Complied by: Mohammad Faizan Farooq Qadri Attari

Prepared & Complied by: Mohammad Faizan Farooq Qadri Attari

Standard gross profit 50

Standard Selling price 280

The fixed production overhead included in the standard cost is based on an

Sales 780 units @ £300 234,000

Prepared & Complied by: Mohammad Faizan Farooq Qadri Attari

Prepared & Complied by: Mohammad Faizan Farooq Qadri Attari

If someone found using &

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