Summary Variance Analysis Notes

VARIANCE ANALYSIS

ACM vs DCM
Absorption Costing ACM Variable VCM
- Includes – both fixed and variable OH in - Only includes – variable costs in man
manufacturing costs OH
- Under/(over) recovery - Fixed cost – actual
- Fixed OH – allocate



Standard Cost per Unit
- Use budgeted figures – compiled with standards
Cost Quantity Price Standard Cost P/U
Element
Raw Meters Total meters Total R M /u
= = =
Material Total units Total meters R/m

= m/u = R/m = R/u
Labor Hours Total hours Total R H /u
= = =
Total units Total hours R/ h

= h/u = R/h = R/u



SALES VARIANCES

Sales Price Variance
= (Budgeted SP p/u - Actual SP p/u) x Actual Units

Sales Volume Variance

ACM
= (Budgeted units sold – Actual units sold) x Std Gross Profit p/u

Budgeted Profit
Std Gross Profit p/u =
Budgeted units sold

DCM
= (Budgeted units sold – Actual units sold) x Std Contribution p/u

( Budgeted profit +¿ OH )
Std Contribution p/u =
Budgeted units sold

, FIXED OVERHEADS VARIANCES

Fixed OH Spending Variance
= Budgeted fixed OH – Actual Fixed OH

Fixed OH Volume Variance
= (Budgeted units – Actual units) x Std rate p/u

Fixed OH CAPACITY Variance
= (Budgeted hours – Actual hours) x Std rate p/h

Fixed OH EFFICIENCY Variance
= (Hours as per Std – Actual hours) x Std rate p/h

Hours per Std = (Actual units x Std hours p/u)

Capacity vs Efficiency
Budgeted Hours Actual Hours Hours as per Std
Expect workers to work Actually worked Should’ve used
52 380 hours 51380 hours to make 530 51 410 hours to make 530
sets sets
Capacity Variance Efficiency Variance
- Used less hours than budgeted for - Actually used less hours as per Std to
- Capacity under-utilized (adverse) manufacture 530 sets
- More efficient – favorable



RAW MATERIAL VARIANCES

Raw Material USAGE Variance
Should’ve used: (actual units x Std m/u) Xxx m
Actually used: Xxx m
Difference Xxx m
Difference m X Std R/m Variance

RM valuation at ACTUAL COST – RM price variance on ISSUE
RM valuation at STD COST – RM price variance on PURCHASE