Variance Analysis
Variance Analysis Formulae Sheet:
Material Price Variance
(Standard Rate per KG – Actual Rare Per KG) × Actual Quantity purchased
Material Usage Variance
(Standard Quantity – Actual Quantity used) × Standard Rate per KG
Labour Rate Variance
(Standard Rate per hour – Actual Rate per hour) × Actual Hours paid
Labour Efficiency Variance
(Standard Hours – Actual Hours worked) × Standard Rate per hour
Idle Time Variance
Idle Hours × Standard Rate per hour
Overhead – Actual Fixed Overhead
Sale Price Variance
(Actual Sale Price per unit – Standard Sale Price per unit) × Actual Quantity Sold
Sale Volume Profit Variance
Actual Quantity Soled – Budgeted Quantity) × Standard Profit per unit
Sale Volume Contribution Variance
Actual Quantity Soled – Budgeted Quantity) × Standard Contribution per unit
Standard Quantity
Actual Production × Standard material required to produce one unit
Standard Hours
Actual Production × Standard hours required to produce one unit
CITY UNIVERSITY
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Variance Analysis
Test your understandings:
1. Direct Material & Direct Labour Cost Variances
Product X has a standard costs as follows.
10 kilograms of material Y at $10 per kilogram = $100 per unit of product X
2 hours of grade Z labour at $5 per hour = $10 per unit of product X
During period 4, 1,000 units of product X were made using 11,700 kilograms of material Y which
cost $98,600, and the direct labour cost of grade Z labour was $8,900 for 2,300 hours of work.
Calculate the following variances?
(a)
(b)
(c)
(d)
Material Price Variance
Material Usage Variance
Labour Rate Variance
Labour Efficiency Variance
2. Labour Variances With Idle Time
Product B has a standard costs as follows.
2 hours of grade Z labour at $5 per hour = $10 per unit of product B
During period 5, 1,500 units of product X were made and the cost of grade Z labour was
$17,500 for 3,080 hours. During the period, however, there is a shortage of customer orders
and 100 hours were recorded as idle time.
Calculate the following variances?
(a)
(b)
(c)
(d)
Total Labour Variance
Labour Rate Variance
Idle Time Variance
Labour Efficiency Variance
3. Selling Price Variances
ABC Ltd has the following budget and actual figures for 20X7.
Sales units
Selling price per unit
Standard full cost of production = $28 per unit
Budget
600
$30
Actual
620
$29
Required
Calculate the selling price variance and the sales volume profit variance?
CITY UNIVERSITY
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Variance Analysis
3. Total Variances
Sydney Ltd manufactures one product, and the entire product is sold as soon as it is produced.
There are no opening or closing stocks and work in progress is negligible. The company
operates a standard costing system and analysis of variances is made every month. The
standard cost card for the product, a boomerang, is as follows.
STANDARD COST CARD – BOOMERANG
Direct material
Direct wages
Variable overheads
Fixed overhead
Standard cost
Standard Profit
Standing selling price
$
2.00
4.00
0.60
7.40
14.00
6.00
20.00
0.5 kilos at $4 per kilo
2 hours at $2.00 per hour
2 hours at $0.30 per hour
2 hours at $3.70 per hour
Selling and administration expenses are not included in the standard cost, and are deducted
from profit as a period charge.
Budgeted (planned) output for the month of March 20X7 was 5,100 units. Actual results for
March 20X7 were as follows.
Production of 4,850 units was sold for $95,600.
Material consumed in production amounted to 2,300 kgs at a total cost of $9,800.
Labour hours paid for amounted to 8,500 hours at a cost of $16.800.
Actual operating hours amounted to 8,000 hours.
Variable overheads amounted to $2,600.
Fixed overheads amounted to $42,300.
Selling and administration expenses amounted to $18.000.
Required:
Calculate all Variances for the month ended March 20X7?
CITY UNIVERSITY
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