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SBCS Global Learning Institute

Study School

ACCA PM – Performance
Management

Section D

Budgeting and Control

Lecturer: Nanda Maharaj

Study School Notes Part 3

Budgeting and Standard Costing

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Variance Analysis
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Basic Variance Calculation:

Formulas: Material Variances
Material Cost Variance = Actual units should cost x Std Cost = X
Actual Units did Cost = X
X

Material Price Variance = Actual Kgs should cost x Std Price = X

Actual Kgs did Cost = X
X

Material Usage Variance = Actual Units should Use x Std Kg = X

Actual Kgs used = X
X * Std Price
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Labour:
Labour Cost Variance = Actual units should cost x Std Cost = X
Actual Units did Cost ( X)
X

Labour Rate Variance = Actual Hours should cost x Std Rate = X

Actual Hours did Cost (X)
X

Labour Efficiency Variance = Actual Units should take x Std Hrs = X

Actual Hours taken = (X)
X * Std Rate per hr

Idle Time Variance = Idle Time Hours * Standard Rate per hour

Variable Overhead Variances:

Variable Overhead Cost Variance = Actual units should cost x Std Cost = X
Actual Units did Cost ( X)
X

Variable Expenditure Variance = Actual Hours should cost x Std Rate = X

Actual Hours did Cost (X)
X

Variable Efficiency Variance = Actual Units should take x Std Hrs = X

Actual Hours taken = (X)
X *
Std V’Oh Rate per
hour

Fixed Overhead Variances:

Fixed Overhead Cost Variance= Actual units should cost x Std Cost = X
Actual Units did Cost ( X)
X

Fixed Overhead Expenditure Variance= Actual Fixed Overhead = X

= Budgeted Fixed Overhead = (X)
X
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Fixed Overhead Volume Variance= Actual Units Produced = X

Budgeted Units produced = (X)
X * FOAR unit

Fixed Overhead Capacity Variance= Actual Hours = X

Budgeted Hours = (X)
X * FOAR hr

Fixed Overhead Efficiency Variance= Actual Units should take x Std Hrs = X
Actual Hours taken = (X)
X*
FOAR per hr

Sales Variances:
Sales Price Variance = Revenue for Actual Units should be x Std selling Price = X
Actual Revenue for Actual Units =(X)
X

Sales Volume Variance = Actual Units Sold =X

Budgeted Units Sold = (X)
X * Standard Profit

Standard Profit = Selling Price – Cost

Standard Contribution (Marginal Cost) = Selling Price – Variable Cost

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Operating Statement
Operating Statements reconciles budgeted profit with Actual profit.

Most common presentation (Absorption Costing)

$ $
Budgeted profit X
Sales variances – price X
– volume X
X
Actual sales minus standards cost of sales X
Cost variances $ $
(F) (A)
Material price etc X
Fixed o/hd volume etc X
X X X
Actual profit X

Most common presentation (Marginal Costing)

$ $
Budgeted profit X
Budgeted fixed production overhead X
Budgeted contribution X
Sales variances (price and volume) X
Actual sales minus std variable costs of sales X
Variable cost variances X
Actual contribution X
Budgeted fixed production overhead X
Expenditure variance X
Actual fixed production overhead X
Actual profit X
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Mix and Yield Variances

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Mix variance

Actual qty Actual qty Differenc Std cost Variance $

Std mix Actual mix e
Material A X X X $X X

Material B X X X $X X
X X X

Yield Variance Calculation

Alternative yield calculation

Batches

Actual input should yield X

Actual input did yield (X)
X
Valued at standard cost per batch $X
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Format: Sales Mix Variance

Product Actual Qty in Std Mix Actual Qty in Actual Mix Variance Std CPU Variance

Format: Sales Quantity Variance

Product Actual Qty in Std Mix STD Qty in STD Mix Variance Std CPU Variance
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Planning and Operational Variance Analysis

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Planning variances
 Arise due to inaccurate planning/faulty standards and so not controllable by
operational managers but by senior management
 Calculated by comparing an original standard with a revised standard

Operational variances
 Caused by adverse/favourable operational performance
 Calculated by comparing actual results with a realistic, revised standard/budget

Planning Variances compares revised standard with original

standards. Strategic level managers are responsible for planning variances.

Operating Variances compares revised standard with actual

incurred. Operational managers are responsible for operating variances.
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Total Material Variance

Material Planning Variance Material Operating Variance

Material Price Material Usage Material Price Material Usage

Planning Planning Operating Operating

Material Planning Variance

Actual units should cost @ std cost per unit = X

Actual units should now cost @ revised std cost per unit = X
Variance X/(X)

Material Price Planning Variance

Actual material should cost @ original std price = X

Actual material should now cost @ revised std price = X
Variance X/(X)

Material Usage Planning Variance

Actual units should use @ original std kg = X

Actual units should now use @ revised std kg = X
Variance = X/(X)@ original std cost
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Material Operating Variance

Actual units should now cost @ revised std cost per unit = X
Actual units did cost =X
Variance X/(X)

Material Price Operating Variance

Actual Purchases should now cost @ revised std price = X

Actual Purchases did cost X
Variance X/(X)

Material Usage Operating Variance

Actual units should now use @ revised std kg = X

Actual units did use =X
Variance = X/(X) @ original std price

Total Labour Variance

Labour Planning Variance Labour Operating Variance

Labour Rate Labour Efficiency Labour Rate Labour Efficiency

Planning Planning Operating Operating
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Labour Planning Variance

Actual units should cost @ std cost per unit = X

Actual units should now cost @ revised std cost per unit = X
Variance X/(X)

Labour Rate Planning Variance

Actual hrs should cost @original std rate = X

Actual hrs should now cost @revised std rate = X
Variance X/(X)

Labour Efficiency Planning Variance

Actual units should take @original std hrs = X

Actual units should now take @revised std hrs= X
Variance = X/(X)@ Std original rate per hr

Labour Operating Variance

Actual units should now cost @ revised std cost per unit = X
Actual units did cost = X
Variance X/(X)

Labour Rate Operating Variance

Actual hours should now cost @ revised std rate= X

Actual hours did cost X
Variance X/(X)

Labour Efficiency Operating Variance

Actual units should now take @ revised std hrs = X

Actual units did take= X
Variance = X/(X) @ orig. std rate
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