• avatar says

        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??

      • Profile photo of John Moffat says

        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.)

  1. avatar says

    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

  2. avatar says

    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?

    • Profile photo of John Moffat says

      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).

  3. avatar says

    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.

    • Profile photo of John Moffat says

      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.

  4. avatar says

    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

    • Profile photo of John Moffat says

      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.

Leave a Reply