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.
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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.
It actually makes the operating statement for useful / meaningful. However you will not be asked to produce a full operating statement – only extracts.
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.
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,
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.
okay, many thanks!
Good lecture, only that I don’t understand why the Original Budget profit is 20000 and not 23000. Did I miss something?
The original budget profit is indeed 23,000. See the lecture at 4 minutes 15 seconds.
Oh ok, thanks then.
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 :$
@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.
please multiply (16-15.88235) with no. of units sold, i.e., 5100, not Revenue ,i.e., 81000.
Original budget is $23, 000
@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.
Dear Sir,please illustrate that how could we calculate variable overhead expenditure variance in the above example?
Must practice these planning and operational variances a bit more its quite confusing at some times. Good lecture though.
i figured out that mistake
@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.
Good Luck on your Exam/s.
@Et, Correction “may hae” May have
The figure for the revision variance should have been $5830 A and not $2830 A. The lecturer mistakenly picked $20,000 as the figure for the original budget profit instead of $23,000, culminating in a difference of $2830 A.
The operating statement should have read:
$
Original Budget profit 23000
Planning variance 5830 (A)
Revised Budget profit 17170
thanks…………..!
thank you very much for these fantastic lectures!! I think original budget profit on the operating statement should be 23,000 not 20,000 and therefore planning variance should be 5,830 ??
@caglaremua, I agree…I would think the original budget profit should be 23000
@caglaremua, yes you are correct