1. avatar says


    My study text appears to use the two separate methods applicable and has left me confused. I have used what I believe is the alternative method.

    Am I correct that the following is acceptable.

    For Material price / Labor rate expenditure

    Planning variance can be

    Actual Purchase volume/number of hours * (Original Standard cost – Revised Standard cost)

    Operational variance

    Actual Purchase volume/number of hour * (Revised Standard cost – actual cost)

    And for Usage/efficiency

    Planning variance

    Original standard cost * ( Original standard hour – Adjusted standard Hr)

    Opperational Variance

    Original standard cost * ( adjusted standard hour – actual hours)

    thanks in advance

    • Profile photo of John Moffat says

      I think you are correct, but I am afraid that I hate using formulae.

      As you will know from watching my free lectures on this, I much prefer to do it using understanding (because that means less risk of forgetting a formula, and makes it easier to answer written questions – especially since 50% of the exam will be writing)

      • avatar says

        thanks John. I agree re formulae – but I was trying to be concise.

        that is part of the reason I prefer the above method as it totals back to the standard variance.

  2. avatar says

    Hi John, in Dec 2012 Q2, part b, labour efficiency operationaly variance. i thought should be: (actual hours for actual production – revised hours) x revised rate $11.4, but examer’s answer is standard rate $12. I confused please advise, thanks.

    • Profile photo of John Moffat says

      The examiner has done her answer a different way than the way everyone else does it (BPP, Kaplan, Opentuition etc..) and her way is not sensible!!
      However she did say that doing it the way everyone else does would have got full marks.

      You can see the sensible way of doing it if you go to this link:

      (or download a printed version from the F5 page)

      • avatar says

        thanks, but the planning variance + operational variance in par (b) do not equal to total variance in par (a) in normal way which we use, your answer planning rate variance+operational rate =7380+0=7380 F, while total variance is 7200 F. And planning efficiency variance + operational efficiency =24600 A + 3420 F =21180 A, not equal to total efficiency variance 21000 A too. Shouldn’t they equal to each other?

      • avatar says

        seems in part b, the rate variance in total is $180 more than part a, and the same, efficiency variance is £180 more than part a too. Are there any connections between these numbers?

      • Profile photo of John Moffat says

        No – they are not equal. It is because if we were doing a full operating statement then the budget would have been flexed because of the sales volume variance.

        The way it is done in my answer is the same way that all of the study texts do it, and would get full marks (even though the final figures are different from the examiners answer)

  3. avatar says

    H John, chapter 14 more variance—activity based costing variances example 6, in your answer, there is number in total variance section $45,600 and expenditure variance section $46,740, I don’t know where they are from, the answer looks good without these numbers. please advise, thanks

    • Profile photo of John Moffat says

      Ooops – I have no idea where those two numbers have appeared from :-)

      They should not be there – please cross them out.

      I will get admin to remove them and upload a corrected copy. Thanks for pointing the typing mistake out.

  4. avatar says

    Great lecture!
    I have question by the way, every time I working out variance analysis question i dont know whether i should compute total variance (total labour variance) or labour rate variance and labour efficeiency variance, I mean how can I now whether total variance is sufficient? in this example you worked out total expenditure variance but in case of labour variance you was more detailed computing labour efficiency and rate variance, why?
    thank you in advance for reply

    • Profile photo of John Moffat says

      The question will either state specifically what variances are required, or it will ask you to compute the variances ‘in as much detail as the information allows’. It is very unlikely you would ever be asked for the total variance (I showed it in the lecture to help explain) – the exam will almost without doubt ask for the rate of pay and efficiency.

  5. avatar says

    Hey John..

    In one of the question in GTG that I have come across, they have used actual kg x actual units for planning material price variance instead of using revised kg x actual units (both revised kg and actual kg are given in the question ), is there any reasoning behind this? Or is it just another method? Please hellpppp..

  6. Profile photo of Mahoysam says

    Hello there! Thanks for the wonderful lectures. I just have an inquiry, may I know if the below variances are explained anywhere over here on opentuition? I just happen to have them in the syllabus but I am not really getting them and I wonder if they are explained here. Many thanks.

    1. Sales mix variance
    2. Sales Quantity Variance
    3. Market size and Market share variances.

    • Profile photo of Mahoysam says

      Also, if they are not provided on opentuition, can you please clarify to me something?

      I kind of understand the sales mix and quantity variance, it is very similar to the mix and yield variance, but I have an issue, in one question, I have the following info:

      Example 4
      A B
      Budgeted Sales 800 1,200 – respectively
      Actual Sales 500 1,500 – respectively
      Budgeted contribution per unit $5 $8
      Calculate Sales mix variance.

      When they are calculating the mix variance, they are saying that the budgeted sales ratio is 2:3, I am really not sure how did they come up with this ratio? I am sorry if this is a dumb question but could you please let me know how can I figure out the ratio? Thanks!

      • Profile photo of John Moffat says

        The sales mix etc variances are not covered in the lectures (because they are the same idea as mix and yield) but they are in the course notes.

        The budgeted sales are in the ratio 800:1200 which is the same as 2:3 (divide both by 400). If it is easier for you then use the ratio 800:1200 and you will get the same result.

      • Profile photo of latoyah says

        My question to this is how would we know to do a market share variance and so forth as in one of the past exam papers. i had an idea that with the 10 % percent reduction in the market that it would reduce the budgeted production but how would i know to head it up as Market share variance?

      • Profile photo of John Moffat says

        It would not matter what you call it – there is no special name for it. It is not a ‘standard’ variance.

        The examiner did it to check that you understand the reason for calculating variances and that you are able to analyse into as much detail as possible given the information in the question (rather than just having learned rules without understanding).

      • Profile photo of Mahoysam says

        Seriously, thank you for the quick response!! I am able to solve the question now, I will just use the whole number as a ratio.. Thanks! : )

    • avatar says

      @isejonas, +1 for the question. I got the same question.

      In Example 1 planning variance can be computed by original 5000 unit demand or changed 4500 unit demand (depending whichever first is corrected for – demand or the material prices); but by no way you can get via flexed budged of 5200 units.

      In example 2 i get, 41,000 for usage (@4.1 price) and 16000 of expenditure variance (@ 20,000 units).Total 25000 (F)

      • avatar says

        @vdrozdas, Shit I see that nobody’s gonna answer it quickly. I Still think that in Exmaple 2 we should quantitive variance as operational variance, not the Planning.

      • avatar says

        @vdrozdas, FYI guys, just checked the KAplan study book(publish year 2012) on p 327 it clearly says: ” the only accepted approach at exam is to flex both original and revised bugdet to actual production levels.

        However in example one,still, we did not flex the original bugdet…

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