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February 14, 2017 at 5:23 pm
Your lectures are amazing I appreciate all the effort you have put into these lectures.
I was attempting a question from the exam kit (kaplan, f2, P93, Q: 310) it asks us to calculate overhead variance:
its given us: £ per unit
direct material: 15
Direct Labour ( 3hours ) 12
Variable overhead: 6
Fixed Overhead: 4
Overheads are absorbed on the basis of units produced
Actual units produced: 800
budgeted production: 900
actual expenidture: 8500
To work out expenditure variance i would:
actual exp: 8500
therefore expenditure variance is 500 adverse
f/o( 800*4) 3200
The answer on the back of the book shows:
actual exp: 8500
expenditure variance is 100 adverse
f/o( 900*4) 3600
My question is:
a) since fixed overheads are on the basis of how many units ACTUALLY produced why do we calculate expected expenditure using budgeted production i.e. 900*4 and not 800*4?
b) why arent material and labour taken into acount??
I look forward to hearing from you
John Moffat says
February 15, 2017 at 7:00 am
You must ask this in the Ask the Tutor Forum, and not as a comment on a lecture.
April 29, 2016 at 3:34 am
Thanks for your lecture. I have read your reply for my question in the Ask the Tutor Forum; however, I cannot find the answer in the lecture.
How can I calculate Material Total Variances in case the purchased amount is different from the used amount? Is it:
Material Total Variances = (Actual Price – Standard Price) x Actual Purchase + (Actual Usage – Standard Usage) x Standard Price
Material Total Variances = Actual Price x Actutal Purchase – Standard Price x Standard Usage
Material Total Variances = Actual Price x Actutal Usage – Standard Price x Standard Usage
Thanks in advance.
April 29, 2016 at 8:19 am
None of those (and it is dangerous to simply learn formulae).
For the total material variance you take the actual expenditure less the standard cost of the closing inventory of materials, and compare it with the standard cost for the actual production.
March 1, 2016 at 2:36 am
how can we find actual purchase at actual cost (35464kg) in first example
March 1, 2016 at 6:33 am
It is given in the question!!
(As it says at the start of every lecture, you need to download the free lecture notes)
January 11, 2016 at 7:36 am
in book said that fixed o/h dosnt change it estimates as standard cost in flexed budget isnt it true?
January 11, 2016 at 9:14 am
Yes it is true. If you are simply asked to flex a budget then the fixed overheads stay fixed.
However variance analysis (when using absorption costing) effectively flexes the fixed overheads, which explains why (in the following lectures on variance analysis) we have extra variances for fixed overheads. I do the flexed budget here to make sense of the fixed overhead variances that follow.
(It is exactly the same problem that you will have seen in the earlier lectures on absorption costing – that when using absorption costing there is likely to be an over or under absorption of fixed overheads that needs correcting for.)
November 14, 2015 at 9:03 am
thank you so much for your lectures, they have absolutely been very helpful… i am just a bit confuse about the variance, you said the sales is adverse, but the actual was $613200 which i actually sell and the budgeted was $630000, if i budget 630000 and i used less 613200, i was thinking it should be favorable not adverse.. please advise her b4 i make the big mistake of my life loosing 2 marks 🙂
thank you sir
November 14, 2015 at 9:46 am
The actual sales revenue is 613,200. Since they are receiving less than they were budgeting on receiving they will make less profit – that is why it is adverse.
(When it comes to the costs, then spending less than they budgeted is saving them money – therefore more profit and therefore favourable.)
November 14, 2015 at 10:10 am
thank you sir…. u are a natural… Have a great weekend.
November 14, 2015 at 9:59 am
thank you sir for the clarification, if that is the case sir what about the variable overhead, the actual is 87348 is less than the budgeted of 89000 and we say its favorable?
which is the same for sales which the actual was less than the budgeted and we say adverse? i am sorry but i just want to get it right sir and i am not confusing myself..
thank you for your time sir
November 14, 2015 at 10:03 am
But variable overheads are an expense – if you pay out less you make more profit (favourable), if you pay out more then you make less profit (adverse).
Sales are income – if you receive less then you make less profit (adverse) and if you receive more then you make more profit (favourable).
November 14, 2015 at 10:05 am
now i can see the whole logic.. the productions are the costs that i uncured while the sales/ revenue are what i am expecting in terms of profit and the rule of adverse and favorable is vice versa am i right?
November 14, 2015 at 10:33 am
October 25, 2015 at 11:10 am
The $3255 is the Total Material Cost Variance, right??
October 25, 2015 at 11:11 am
Yes (but as you continue with the lecture, it is more important for the exam to be able to analyse it between material expenditure and material usage).
July 10, 2015 at 10:45 am
Sir, can you please explain Variance Percentage?
how is it calculated??
July 10, 2015 at 11:28 am
Is the variance expressed as a % of the budget (but is not asked for in Paper F2).
July 11, 2015 at 7:58 am
My teacher taught me that It is calculated using this formula:
Variance % = [Variance (Adv or Fav) / St. or Budgeted Cost]*100
eg MPV % = [MPV (Adv or Fav) / St Cost of RM per unit]*100
I wanna know, Is the Standard or Budgeted Cost used above is the whole cost that should’ve been incurred for the actual output?? and will the same cost be used when doing Material Quantity Variance %??
Also that, Is variance % a margin ( or %) of the budgeted cost??
July 11, 2015 at 9:47 am
Again, variance percentage is not in the syllabus for Paper F2! (and it can be calculated in more than one way – there is no standard rule.)
July 15, 2015 at 9:11 am
Thank you very much for the guidance Sir. 🙂
July 15, 2015 at 9:36 am
You are welcome 🙂
June 18, 2015 at 11:05 am
for a product r mpv for august was $1000F and muv 300A
standard usage per unit is 3kg standard material price is 2 per kg
500 units were produced in the period opening inventory on raw materials was 100 kg and closing inventory 400kg material purchases in the period were.
sir please help thnx in advance
June 18, 2015 at 11:14 am
You must ask these questions in the Ask the Tutor Forum, and not as comments on a lecture.
November 28, 2015 at 1:10 pm
is the right answer 1650 kgs or not..?
November 28, 2015 at 1:11 pm
No it is not the right answer.
See the Ask the Tutor Forum – the question was reposted there as requested (you can use the search box)
May 16, 2015 at 11:18 pm
First of all thanks for all lecturess.. its really helpfull.
i study from BPP and there is this all sort of formulas like … direct material total variances=standard material cost per unit for actual output-actual total material cost.. this formula is necessary to use?
May 17, 2015 at 10:12 am
There are several ways you can calculate the variances (all giving the same answer 🙂 ), and you can use whichever you find the easiest.
I prefer the way I do it because I always find learning formulae dangerous (partly in case I forget them, but also because I think it important to understand what is happening).
July 22, 2014 at 9:07 am
Sir, is this the formula for labour rate variance?
Labour rate variance(A/F) = (Actual rate – Standard rate) x actual hours paid?
July 22, 2014 at 9:39 am
That is correct 🙂
November 10, 2013 at 12:23 am
I also realize that with the rule you mentioned, you said that it is the actual purchases at cost minus actual purchases at standard cost nut based on the BPP text i am using it does the reverse of your rule. Which of the rule is correct cause it would affect whether the final amount would be favourable or adverse.
November 10, 2013 at 8:17 am
It does not matter which way round you write the rule – the number will be the same!
As regards whether it is adverse or favourable, you really should not learn that as a rule – if you are spending more than you should it is adverse, if you are spending less than you expect then it is favourable.
Certainly learn the rules for the calculations, but you must make sure you understand why variances are favourable or adverse – the exam will not simply test that you have learned rules – it will test your understanding as well.
November 10, 2013 at 12:15 am
Why is the $612.00 favourable when the amount of 136 kg would have been an adverse amount.
November 10, 2013 at 8:20 am
Why on earth is the 136kg adverse?
For the production of 8,900 units, we would have expected to use 8,900 x 4 = 35,600 kg.
We actually only used 35,464kg which is 136 less than we would have expected – that will save money, give more profit, and is therefore favourable.
November 10, 2013 at 11:34 am
I realised my error. I understand now. Thanks for your reply.
December 13, 2012 at 6:48 pm
I watched open tuition for the first time and that lecture on budgeting and variances was amazing. I now know how to calculate variances without memorising the formula. That tutor teaches the concept which is exactly what I needed. Excellent lecturer
April 15, 2012 at 10:53 am
why in flexible budget closing inventory are valued at fixed budget valuation amount??
November 10, 2013 at 8:22 am
It is valued at standard cost in management accounting,
The reason (which is explained also in the lecture) is because variance analysis would usually be done every month and it will be silly to keep changing the inventory values each month – some months costs will be higher and some months the costs will be lower, and so we value inventory at what we expect the average cost for the year to be.
(In practice, there could be good reasons for actually changing the standard cost during the year, but this will not happen in Paper F2 – we always value inventory at standard cost.
March 29, 2012 at 7:18 am
what u see is what you get
this is what he told me!!!!! lol
February 12, 2012 at 9:26 am
it’s real nice lectures! Thank you opentuition!
November 10, 2011 at 9:01 am
wow,thats terrific,splendid lectures.Admin,how about the other lectures for chapter 20,14,19,25,23,21 and 26.
September 5, 2011 at 4:15 pm
Well explained .Thanks for the great effort. Keep it up
August 1, 2011 at 8:13 pm
wonderful……thank you sir.
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