Variance Analysis (part 3) – ACCA Management Accounting (MA)
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Hi John! I quite don’t understand why in the part of the capacity variance, we have actual working hours = 44100 & originally budgeted hours = 43500, but the result is saving (F)… I think if it takes more time than budgeted to finish -> the result should be (A)
The logic is that if we manage to obtain more hours than we budgeted on being available, then we will be able to make more units (and therefore make more profit) than we were expecting.
Why we are using 8700 units for calculate the capacity variance, and for efficiency variance 8900 units?
The capacity variance is looking at whether we got more or less labour hours than we originally budgeted on getting. The efficiency variance is look at whether we worked more or less hours for the actual level of production.
Ok got it. Thank you ?
You are welcome 🙂
I understand whole process of $3000 (F), but wonder why capacity variance means “getting more Labour”? We use the standard hours for real production (8700×5), how does it connected with hiring more Labour?
Sir, please answer question if you have times. Thanks a lot
But I do explain this in the lecture.
Increasing the volume (i.e. the number of units we are capable of making) is done by either getting more labour hours than we budgeted on having or on having the workers be more efficient (i.e. work faster). (Or, of course, a combination of both).
Sir, thank so much for patient explaining. I got that now.
You are welcome 🙂
Thanks so much John. Have about 10 days to sit exams but your lectures has enlightened my understanding on standard and variance analysis. Be blessed
Thank you for your comment 🙂
where did we get this 3574 adverse as expenditure variance?
It is the difference between the actual fixed overheads (134,074) and the original budgeted fixed overheads (130,500).
(I assume that you have printed out the free lecture notes and have them in front of you.)
I’ve understood that why $3000 is Favourable
you can see:
difference in fixed OH of fixed budget and flexed budget = $3000
difference in fixed OH of flexed budget and Actual = $574
it means that the actual results was charged less the budget => 200 more units with standard cost fixed OH is $3000 (F)
Thank you very much for this lecture… I am more at ease in tackling variance questions…Thanks to you sir…
Thank you for your comment 🙂
Thank you so much sir, I am a few days befor the exam and was panicking but your lecture on variance analysis has helped me to grasp the key areas of the syllabus without extensive reading of the text.
Very clear and concise explanations!