1. avatar says

    I don’t know where did you get £20,000 when calculating planning variance. It shouldn’t been a £ 23,000 as original budget figure and then minus 17,170 (revised budget figure), which would give £5,830variance.

  2. Profile photo of cecel says

    Hi John,
    I just checked the answers for example 1 on planning and operational variances and I am a bit confused. The planning variance is stated as $5,830 (A) and not $2,830 (A) as stated by you. I noticed that in the planning variance, the operating statement only states the contribution per unit and not go on to deduct the overheads of $20,000 to state the profit. So for the exam what do I do? Which revised contribution/profit do I compare the actual to in the operational variance?

    • Profile photo of John Moffat says

      It is obvious in the lecture that I picked up the wrong figure by mistake – I will re-record it :-(

      The answer at the back is correct.

      In the exam you will not get asked for a full operating statement. However, it does matter whether you start with budget contribution and reconcile to actual contribution (and then subtract fixed costs to arrive at actual profit), or if you start with budget profit and end with actual profit. It makes absolutely no difference – there is not standard ‘layout’ for management accounts. What is important is the variances and the interpretation of them.
      (Obviously if the question were to specifically state that you were required to reconcile the contributions, then you would start with budget contribution)

  3. Profile photo of John Moffat says

    There is no mention of the fixed overheads being revised, and so they are still 20000 when calculating the revised profit.

    However the actual fixed overheads are 19500, so there is a fixed overhead operational variance.

  4. avatar says

    Hi John thanks for your explanation. As you were calculating based on Revised Budget Profit, I just need to add – Material, Labour and V.OH variances. I don’t think to add Fixed O/H variances (expenditure and volume). Am I right?

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