Variances

Question 1

Material Price Variance

Answer 1

Actual Quantity x Actual Rate (AQ x AR)
Actual Quantity x Standard Rate (AQ x SR)

Is the difference between the standard cost and the actual cost for the actual quantity of material purchased.

Question 2

Material Usage Variance

Answer 2

Actual Quantity x Standard Rate (AQ x SR)
Standard Quantity for Actual Production x Standard Rate (SQAP x SR)
(Flexed budget)

Shows if a company uses less or more than the standard quantity of materials that should have been used for the products actually produced.

Question 3

Direct Material Variance

Answer 3

Actual Quantity x Actual Rate (AQ x AR)
Standard Quantity Actual Production x Standard Rate (SQAP x SR)

The Variance is the total of the material price and the material usage variances.

Question 4

Direct Labour Variance

Answer 4

Actual Hours Paid x Actual Rate (AHP x AR)
Standard Hours Actual Production x Standard Rate (SHAP x SR)

The Variance is the total of the labour Rate Variance and the labour efficiency variance.

Question 5

Labour Rate Variance

Answer 5

Actual Hours Paid x Actual Rate (AHP x AR)
Actual Hours Paid x Standard Rate (AHP x SR)

Comparison used to compute a labour Variance compares standard versus actual rates and hours for workers.

Question 6

Labour Efficiency Variance

Answer 6

Actual Hours Paid x Standard Rate (AHP x SR)
Standard Hours Actual Production x Standard Rate (SHAP x SR)

Used to measure the performance of production department in utilising the abilities of the workers

Question 7

Labour Rate & Efficiency Variances

Answer 7

Actual Hours Paid x Actual Rate
Actual Hours Paid x Standard Rate
Standard Hours Actual Production x Standard Rate

Question 8

Labour Rate, Idle time & efficiency variances

Answer 8

AHP x AR
AHP x SR
Actual Hours Worked x Standard Hours
SHAP x SR

*Idle time variances will be adverse

Question 9

Controllable/uncontrollable material usage variance

Answer 9

Actual Quantity x Standard Rate
Revised Quantity x Standard Rate
Standard Quantity x Standard Rate

Revised Quantity = Standard Quantity x new index / original index

Question 10

Controllable/Uncontrollable material price variance

Answer 10

Actual Quantity x Actual Price
Actual Quantity x Revised Price
Actual Quantity x Standard Price

Revised Price = Standard Price x new index / original index

Question 11

Variable overhead variances

Expenditure & Efficiency

Answer 11

Usually calculated on labour hours worked

Actual Hours Worked x AR
Actual Hours Worked x SR
SHAP x SR

Question 12

Fixed Overhead Absorption Rate

Answer 12

Budgeted Fixed Cost / Budgeted Hours

Actual Fixed Cost - (Actual production in hrs x absorption Rate)
*over absorption is favourable

Question 13

Fixed overhead expenditure variance

Answer 13

Budgeted Fixed Overhead Total - Actual Fixed Overhead Total

Question 14

Fixed Overhead Volume Variance

Answer 14

Budgeted absorption (budgeted production x ab Rate) - Actual absorption (actual absorption x ab Rate)

*over absorption is favourable

Question 15

Fixed Overhead Volume Variance

Answer 15

Budgeted Production x ABR
Actual Production x ABR

• Actual Production bigger is favourable

Volume Variance = Capacity Variance + Efficiency Variance

Question 16

Fixed Overhead Capacity Variance

Answer 16

Budgeted Hours x ABR
Actual Hours Worked x ABR

*more actual hrs is favourable

Question 17

Fixed Overhead Efficiency Variance

Answer 17

AHW x ABR
SHAP x ABR

*less actual Hours Worked is favourable