Variances analysis , Managerial Accounting

Variances Analysis

Variances are the differences between actual results and expected results. Expected results are the standard costs and standard revenues.

Price, rate and expenditure variances measure the difference between the actual amount of money paid and the amount of money that should have been paid for the actual quantity of materials or the actual number of hours of labor or variance overheads. Usage and efficiency variances measure the difference between the actual physical quantity of materials used or hours taken and the quantities that should have been used or taken for the actual volume of production. These physical differences are then converted to money values by applying the appropriate standard cost.

Basic variance analysis such as this should be well understood by this stage since they were covered in section 2 costing. However it may be important to remind you of the following:

Knowledge brought forward from Costing

The selling price variance is a measure of the effect on expected profit of a different selling price to the standard selling price. It is computed as the difference among the standard revenue from the actual quantity of goods sold and the actual revenue.

The sales volume variance is the difference between the actual units sold and the budgeted quantity, valued at the standard profit or contribution per unit. In other words, it measures the increase or decrease between standard and actual profit and contribution as a result of the sales volume being higher or lower than budgeted.
Price, rate and expenditure variances measure the difference between the actual amount of money paid and the amount of money that should have been paid for the actual quantity of materials or the actual number of hours of labor or variable overheads used. Note that if materials are valued at standard cost, the materials price variance is calculated on purchases in the period but if they are valued at actual cost the variance is calculated on materials used in production in the period.

Usage and efficiency variances are quantity variances.

They measure the difference between the actual physical quantity of materials used or hours taken and the quantities that should have been used or taken for the actual volume of production. These physical differences are then converted into money values by applying the appropriate standard cost.

The idle time variance is simply a number of hours of idle time valued at the standard rate per hour.

Posted Date: 12/7/2012 8:29:47 AM | Location : United States







Related Discussions:- Variances analysis , Assignment Help, Ask Question on Variances analysis , Get Answer, Expert's Help, Variances analysis Discussions

Write discussion on Variances analysis
Your posts are moderated
Related Questions
Suppose the consumer is at coffee shop 2. Coffee shop 2 provides unlimited cups of coffee for the price of $9.00 per day. - How many cups would she drink a day and how much woul

Bank guarantee is one of the facilities which the commercial banks extend in support of their clients in favour of third parties who will be the beneficiaries of the guarantees. In

Various stages of product life cycle Typically the life cycle of a manufactured product will consist of the following stages: 1) market research : before any investment in

Strategy A business characteristically invests considerable time and money in developing or creating its strategy. Employees, harried with day-to-day tasks, sometimes fail to s

For this assignment, please complete and submit Task 1 and Task 2 as described below. Task 1: Classifying Cash Flows The following are transactions, events, and changes in balances

Minimal Regret Criterion : This method seeks to minimize the maximum regret that would occur from choosing a particular strategy or alternative.  The regret is the opportunit

Difference between managerial accounting and financial accounting are mentioned below Audience – Internal Vs External Format of Reporting – Free format Vs prescribed

Adjacent extreme points differ in only one variable The first observation indicates that we can identify the extreme points of the solution space algebraically by setting zero as

monetaryor non monetary which will arise as aresult of implemenntinng the project

Financial decisions are depends on specific considerations the major being the cash flows, liquidity and cost. Short-term working capital decisions or financial decisions are diffe