Planning and Variance formulae.

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    vedavyas
    Participant
    • Topics: 40
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    Now I am officially confused, some places the formula for material usage variance in planning variances is :
    1. ( Revised Quanity Used – Standard Quantity for revised budgeted production)xStd Rate
    In other places :
    2. (Revised Quantity Used – Standard Quantity for actual production) Std Rate
    Material Price Variance- Planning:
    1. ( Revised Rate – Standard Rate) x Actual Quantity
    In other places :
    2. (Revised Rate – Standard Rate) x Revised Quantity

    Please tell what formulae are correct, I was 100 % sure about variances, now I’m just more confused :(


    Profile photo of John Moffat
    John Moffat
    Keymaster
    • Topics: 3
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    There are arguments for doing planning variances in different ways, however the previous examiner made it clear in his article (Student Accountant – August 2009) the way he prefers. The new examiner has not said that she thinks differently.

    Therefore for the usage variance you should use actual production (your second formula).
    For the price variance, the quantity you should use is the actual production x revised standard usage.

    Best is to read his article, and also to watch the second lecture on this website on Planning and Operational Variances.

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