Planning and Operational Variances: Please note that this lecture relates to Chapter 14 of the Course Notes and not Chapter 13 as stated in the lecture. The example is on page 79.
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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.
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
Required:
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!
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.
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?
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).
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! : )
Great – I am glad you understand it now
thanks for the lectures so far.
please in example 1 you picked the original budget and in example 2 you pick the flexed budget? please how can we reconcile these?
thank you.
@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)
@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.
@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…
great I now understand how to calculate total planning and operational variances . Thank you Mr. Moffat……
Question
Why in question one u reconciled from the original budget (unchanged) and in question two u reconciled from flexed original budget.
Thanks
I have a question, what if you are given revised costs but asked for material variances. Would you use the original or the revised to calculate that?
@urenanda, for planning variances simply u wud compare original with revised… nd 4 operational go 4 actual wid revised.. it will be made clear wat’s being asked. i gave general rep coz cudn’t get u ..
@cris9402, I dunno what u mean by couldn’t get me but thanks for the reply
open tuition is splendid and unbelievable