# Planning and Operational variances

#### 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 78.

1. 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.

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It was a mistake – I must re-record the lecture
However, there is an answer at the back of the course notes which is correct.

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?D ? Some piont. Much much Appreciation for every lectures given , and really really thanks to you , Passed 4 of my papers with these lectures

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Chang – thank you very much for the comment

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Thanks too : )

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Should be 23000 , Found that too , why the students never correct our lecturer

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It is because they are all so polite

2. 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?

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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. 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. 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?

• says

Ooops – sorry

The original budget profit was 23,000. Sorry – I will re-record the lecture.

Thanks for pointing it out. (The rest of the answer is – I hope – correct)

5. says

Hello,
I have a question in relation to an exercise about this topic, operating and planning variances. I hope you can help me.
The exercise is called “crumbly cackes” from BPP practise book (exam 6/9 amended)
It requieres us to calculate total cost planning and operational variances. There is a budgeted production and sales of 50000 and an actual production and sales for 60000. When they work out the planning variance the use the the actual level of production instead the budgeted. Is that right? There are no revised level of production/sales.

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The problem is that there is more than one way of doing the calculations, and they give different answers!!

The way that all the Study Texts do it (and our Course Notes and lectures, and the examiners own answer to Crumbly Cakes do it!), is to use the actual production throughout the calculations. This is the most sensible way (and you are right – it is because effectively the budget has been flexed if we were doing a full operating statement).

The new examiner has set this topic once (in December 2012) – the question was called Truffle – and she did it a different (less sensible way). However she did say that the other way (the way that everyone else does it!) would get full marks.

If you want to see the answer to Truffle done the standard way, then I have recorded a lecture on it which you can find on the main F5 page.

6. says

Hello,
How do you calculate the sales mix variance and sales quantity variance?

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It is covered in our course notes and also to my answer to question 4 of the June 2013 exam (which you can find linked from the main F5 page).

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Hello Sir,

I cant seems to find your answer to question 4 of the June 2013 exam

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Sorry – will put it back on
Have you looked at the examiners answer on the ACCA webpage?
If there is a problem, then say which part and I will explain.

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Hello,

Yes I’ve looked through the examiner’s answer and attempt few times its just that by watching you explain and answer the question makes me more understand and could easily remember. Thanks anyway!

7. says

So, say I got a question on planning and operational variances and I was asked to prepare an operating statement, will I start the operating statement by putting the original budget, planning variance and then the revised profit. then when we come to list the costs we will include the sales volume and price variances with the costs? I know my question is similar to fabiangrey’s question but I do apologise as I didn’t get your answer much.

My point is that usually we start the operating statement with the original budget profit, sales volume variance and then sales price variance, here we started it differently, is this another form of operating statement for operational and planning variances and do I need to learn how to produce that? Thanks a lot.

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It actually makes the operating statement for useful / meaningful. However you will not be asked to produce a full operating statement – only extracts.

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Oh, it is because in my revision kit I had questions asking me to produce an operating statement (in basic variances section), but anyways, since I know how to produce full one, I can produce the extracts.

Thanks a lot Mr John.

8. says

Do we still need to include both Sales Variances (Volume & Price) and put them in the Operating statement after revised budgeted profit as well as the Cost Variances? thanks,

• says

Yes. All the operational variances are exactly as normal except you are comparing actual with revised standards (or with original if they were not revised).

The examiner will not set a full operating statement but she can ask any of the individual variances that would appear in the operating statement.

9. says

Good lecture, only that I don’t understand why the Original Budget profit is 20000 and not 23000. Did I miss something?

10. says

Please explain how you reached the Price Variance of 600(A)?
You calculated it as:
(81,000 – (5,100 x 16))
= 600(A)

From my understanding Price Variance is calculated like so:
(Actual Selling Price – Standard Selling Price) x Actual Sales
(15.88 – 16) x 81,000
= 9,529(A) ?

Please let me know as I’m very confused now :\$

• says

@fabiangrey, i think u should ( actual selling price – STD selling price ) x actual sales units. and why u have to divide the actual sales to make it selling price per unit. since u have to times it again…. sorry if im wrong, hehe , i will leave it to the expert to explain.

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please multiply (16-15.88235) with no. of units sold, i.e., 5100, not Revenue ,i.e., 81000.

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@kgurley, The original budget profit is 23,000, but the original budget contribution is 43,000.
If you watch the answer (or look at the back of the course notes at the answer) you will see that the answer starts with the budget contribution and reconciles to the actual contribution, and then subtracts the fixed overheads.
This is a perfectly acceptable layout.

11. says

Dear Sir,please illustrate that how could we calculate variable overhead expenditure variance in the above example?

12. says

Must practice these planning and operational variances a bit more its quite confusing at some times. Good lecture though.

13. says

@fotini, As danozo explains it below he lecturer may hae picked \$20,000 by mistake and carried on using this wrong figure. But if you check the answer at the back of the course note the budgeted figure of \$ 23,000 is used and the planning variance is \$5830A not & \$2830A.