# Standard Costing and Basic Variance Analysis (part 4)

#### Basic Variance Analysis: Please note that this lecture relates to Chapter 13 of the Course Notes and not Chapter 12 as stated in the lecture.

1. says

Hell sir gotta say great lecture. However one query – why does the total sales variance of 16,800 in the flexed budget not equal to the volume and price variance in the workings?

• says

It is because we are explaining the reason for the profit being different that budget. We are not explaining simply the difference in sales revenue.

Sales volume variance is looking at the change in profit caused by the change in sales (and standard profit is standard selling price less standard costs). Sales price variance is looking at the change in profit due to having a higher or lower selling price than standard.

• says

Hi, thanks for the lectures, they are really awesome.
But still there is a thing I cannot understand.
How comes that sales volume variance also explains the difference in profit caused by overproduction. In my understanding it should explain the difference caused by producing extra 400 units.

• says

It because we are looking at the effect on the profit – we are not looking to explain the change in the revenue.

2. says

Hi John,
in your revision notes variance analysis question, the planning variance you used 55000units x1.9kg=104500kg, I thought the planning variance should use budgeted sales which is 600000/12=50000units rather than actual production 55000units, actual production should be used on operational variance. Please advise, thanks.

• says

You would never use budgeted sales for cost variances – it is only ever production that is relevant.

Planning and operational variances can be calculated two ways (and the two ways give different answers but both get full marks).
All of the approved Study Texts (and also an examiners article from several years ago) do it the same way as in our Course Notes and lectures, and use the actual production for both the planning and the operational variances. This is the most sensible way because effectively the budget will have been flexed when sales volume variances are calculated.

The current examiner has only asked it once (the question was called Truffle) two exams ago, and she did it the alternative way (which is a much less sensible way). However her answer made it clear that the other way would get full marks.
If you want to see it done the more sensible way, then you will find my recording of the answer from the main F5 page.

3. says

Dear sir, I would like to know if the variances in the production cost are broken down into expenditure and usage for Materials, rate of pay, IDLE, and efficiency for Labour and so forth. Are the variances within each cost(ie, Materials, Labour, Var OH) fixed or there could be other variances and if there are, how am I going to identify them?

Much thanks and cheers to smoking!

• says

I am not sure what you mean by the variances being fixed.
I think you are meaning is it always the same variances/rules, and the answer is yes as regards basic variances.

The next chapter goes through the more advanced variances (planning and operational, and mix & yield). If these are required then the question will make it clear.

• says

thank you! I was referring to the basic variances.

4. says

Hi,

Why we did not include \$3000 (F) Fixed Overheads volume variance into operating statement?

• says

The volume variance is analysed into the capacity and efficiency variances, so you either just have the volume variance, or you have the capacity and efficiency (which add up to 3000)

5. says

doing great job for Humanity n sme day i will surely join you guys in some way or another…….GOD BLESS.