# Variance Analysis Example 2

1. says

Sir, is this the formula for labour rate variance?

Labour rate variance(A/F) = (Actual rate – Standard rate) x actual hours paid?

2. 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.

• 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.

3. says

Hi,
Why is the \$612.00 favourable when the amount of 136 kg would have been an adverse amount.

• says

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.

• says

Hi

4. 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

• 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.

5. says

wow,thats terrific,splendid lectures.Admin,how about the other lectures for chapter 20,14,19,25,23,21 and 26.