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Cost 2
Chapter 7
Variances

Example:-

Actual Budget
Unit sold (Quantity) 12,000 Unit sold (Quantity) 15,000
Operating income $300,000 Selling price $200
Total fixed cost $700,000 Total fixed cost $650,000
DM cost per unit of input $30 DM cost per unit of input $35
# of DM used per unit 3 # of DM used per unit 2.5
MOH cost per unit $41.66 Total Q of DM used 34,500
DL cost per hour $25 MOH cost per unit $40
Total hour 10,000 DL cost per hour $30
Total hour 9,000

Compute the following:

1- Selling price variance
2- Price variance
3- Efficiency variance
4- Flexible budget variance
5- Sales volume variance
____________________________________________________________________

 Solution:
:‫ كالتالي‬static result & flexible result ‫ نجد‬:‫أوال‬

Actual result** Flexible result Static result

Total revenue 2,829,920 2,400,000 (12,000×200) 3,000,000 (15,000×200)
Variable cost:
DM 1,080,000 (90*×12,000) 1,050,000 (87.5*×12,000) 1,312,500 (87.5×15,000)
DL 250,000 (20.8*×12,000) 270,000 (22.5*×12,000) 337,500 (22.5×15,000)
MOH 499,920 (41.66×12,000) 480,000 (40×12,000) 600,000 (40×15,000)
Total V.C 1,829,920 1,800,000 2,250,000
T.C.M 1,000,000 600,000 750,000
T.F.C 700,000 650,000 650,000
Operating income 300,000 (50,000) 100,000

** )‫نقطة البدء كانت من الدخل التشغيلي (من االسفل الى االعلى‬

* Actual: DM output = 30 (dm input) × 3 (# of DM used)
DL (output) = 25 (DL input) × 0.83 (10,000 ÷ 12,000)
Budget: DM output = 35 (dm input) × 2.5 (# of DM used)

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DL (output) = 30 (DL input) × 0.75 (9,000 ÷ 12,000)

-:Variances ‫ نجد الـ‬:‫ثانيا‬
1. Selling price Variance =
= (Actual S.P – Budget S.P) × Actual output
= (235.8* – 200) × 12,000
= + 429,600 F

* (TR actual ÷ Q actual)

2. Price Variance
- DM:
= (actual price of DM – Budget price of DM)× actual Q of DM
= (30 – 35) × (12,000 × 3)
= - 180,000 F

- DL:
= (actual price of DL – Budget price of DL)× actual Hour of DL
= (25 – 30) × 10,000
= - 50,000 F

3. Efficiency Variance
- DM:
= (actual Q of DM – Budget Q of DM) × Budget cost per unit
= (36,000 – (2.5 × 12,000)) × 35
= + 210,000 U

- DL:
= (actual Hour of DL – Budget hour of DL) × Bud. Cost per hour
= (10,000 – 7200) × 30
= + 84000 U

4. Flexible budget Variance:

= Actual result – Flexible result
= 300,000 – (50,000)
= + 350,000 F

5. Sales Volume Variance:

= Flexible result – static result
= - 50,000 – 100,000
= - 150,000 U

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