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
Transfer Pricing Methods Transfer pricing methods are concerned with the alternative means by which a transfer price can be set and its impact on organizations gauged. Emmanuel

The Role of Computers in Simulation Computers can be used to: 1) To generate the random numbers 2) To simulate thousands of trials. This is done extremely fast, accuratel


State the Working capital turnover ratio  Meaning: this ratio establishes a relation ship among net sales and working capital. Working capital turnover ratio shows the vel

The following information pertains to Fairways Driving Range, Inc.: The company is considering operating a new driving range facility in Sanford, FL. In order to do so, they will


Ranking of Decision Packages The ranking procedure is employed to establish a rank priority of decision packages in the organization. Throughout the ranking procedure managers

EOQ Model with quantity discounts Circumstances frequently occur where firms are able to obtain quantity discounts for large purchase orders. Buying in bulkiness has some merit

Explain the Ratio analysis according to kosher A ratio is the relation of the amount a to another b expressed as the ratio of a to b; a: b (a is to b) or a as simple fraction i

Variances Analysis Variances are the differences between actual results and expected results. Expected results are the standard costs and standard revenues. Price, rate and