Variance Analysis

Question 1

A Variance?

Answer 1

A variance is the difference between what actually happened and what you would have
expected to happen based on the standards you derived prior to the period itself.
Variances that cause the actual profit to be greater than expected are favourable. Those
that cause the profit to be less than expected are adverse.

Question 2

Sales variances

Answer 2

1. Price
2. Volume

Question 3

Price

Answer 3

(Actual Selling Price – Standard Selling Price) x Actual Qty Sold

Question 4

Volume

Answer 4

(Actual Volume Sold – Budget Volume Sold) x Standard CPU

Question 5

Material variances

Answer 5

1.Material Price
2.Material Usage
3.Where Standard Quantity of kgs

Question 6

Material Price

Answer 6

(Actual Price per kg – Standard Price per kg) x Actual Qty Purchased
(kgs)

Question 7

Material Usage

Answer 7

(Actual Quantity of kgs Used – Standard Quantity of kgs) x Standard
Price per kg

Question 8

Where Standard Quantity of kgs

Answer 8

Actual units of the product x standard usage (in kgs)
per unit

Question 9

Labour variances

Answer 9

1.Labour Rate
2.Labour Efficiency
3.Where Standard hrs worked

Question 10

Labour Rate

Answer 10

(Actual rate per hour – Standard rate per hour) x Act hours paid for

Question 11

Labour Efficiency

Answer 11

(Actual hrs worked – Standard hrs worked) x Standard rate per hr

Question 12

Where Standard hrs worked

Answer 12

Actual units of product x standard time (in hrs) per unit

Question 13

Reconciling the Budget and Actual Contribution figures

Answer 13

Step 1: Find the budget contribution (Budget sales revenue less budgeted material costs
& budgeted labour costs)
Step 2: Add any favourable variances to the budget contribution figure
Step 3: Subtract any adverse variances
The answer from step 3 will equal the actual contribution (Actual sales revenue less
actual material costs & actual labour costs)