Further Variance

[coyete]

Anyone can help in further variance?

[sajid mahmood]

dear
if you have any prob. in acca you may contact me ******* i would try to solve:D

[coyete]

How to determine if the variance is Favourable/Adverse when dealing with Sales & Material variance?

[Sonal]

for material variances:
if budget > actual, then it is favourable
if budget < actual, then it is adverse

for sales variances:
if budget < actual, then it is favourable
if budget > actual, then it is adverse

this is because, materials are treated as cost and sales as income. if expenses are more than budget, it shows adverse situation. while, incomes are more than budget, it shows favourable situation (from profit point of view)

[akeel]

Does anyone know , how to remember all variance formula ? is there any easy way to remember them ?

[Nancy]

all these formulae are logical and once you understand the logic you will easily remember the formula. Just like Sonal has written in the above post - that sales is income and hence when budgeted sales< actual sales, variance is bound to be favourable since we made more sales than we had planned for which is good.
Reverse logic applies to costs. Similarly you may remember the logic for all other formulae instead of mugging up the formulae and still remember them.

[Tammi]

Hi,
You are right that the variance formulae are logical and easy to understand but also easy to forget, so when studying variances I wanted to write down something for me not to forget them easily. If you find it easier then you can also use the formulae. So it's my way of variances:
(assuming that F2 students already know the terms: budgeted, standard, actual)
Sales variances

Sales price variance:
Change in budgeted and actual selling price (per unit) x actual sales
Budgeted selling price > actual selling price = A
Budgeted selling price < actual selling price = F

Sales volume variance:
Change in budgeted and actual sales x budgeted profit/contribution
Budgeted sales > actual sales = A
Budgeted sales < actual sales = F

Materials cost variances

Materials price variance:
Change in budgeted and actual cost (per kg, etc.) x purchased material (quantity)
Budgeted cost (per unit) > actual cost = F
Budgeted cost < actual cost = A

Materials usage variance:
Change in standard and actual materials usage x budgeted cost (per kg, etc.)
Standard materials usage > actual materials usage = F
Standard materials usage < actual materials usage = A

Total materials variance
Materials price variance + materials usage variance
or
Standard materials cost - actual materials cost
Standard materials cost > actual materials cost = F
Standard materials cost < actual materials cost = A


Labour cost variances

Labour rate/price variance:
Change in budgeted and actual cost (per hour) x actual hours
Budgeted cost (per hour) > actual cost = F
Budgeted cost (per hour) < actual cost = A

Labour efficiency variance:
Change in standard and actual hours x budgeted cost (per hour)
Standard hours > actual hours = F
Standard hours < actual hours = A

Labour total variance:
Labour rate/price variance + Labour efficiency variance
or
Standard labour cost (of actual production) - actual labour cost
Standard labour cost > actual labour cost = F
Standard labour cost < actual labour cost = A


Variable overhead variances

Variable overhead expenditure variance
Change in standard and actual cost (per hour) x actual hours
Standard cost (per hour) > actual cost = F
Standard cost (per hour) < actual cost = A

Variable overhead efficiency variance:
Change in standard and actual hours x budgeted cost (per hour)
Standard hours > actual hours = F
Standard hours < actual hours = A

Variable overhead total variance:
Variable overhead expenditure variance + Variable overhead efficiency variance
or
Standard variable overhead (of production) - actual variable overhead
Standard variable overhead > actual variable overhead = F
Standard variable overhead < actual variable overhead = A

These formulae are not to be learnt by heart, they just help not to forget variances easily. I'll post fixed overhead variances later.

Any corrections or suggestions are welcome

[ciro]

Tammi txs

your summary is very, very helpful. can you please share the fixed o/h as well