Planning and Operational variances (part 2) – Variance analysis – ACCA Performance Management (PM)
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Good morning sir u said under operational variances wed be asked to prepare it on one segment of the variances like either materials variances or something like that but does that it’s only on labour and materials and not variable o/h and fixed o/h
Hi John,
Can I just double check these formulas/’rules of thumb’ for the operational and planning variances:
RATE/EXPENDITURE VARIANCES:
PLANNING
Actual usage at revised cost X
Actual usage at standard cost X
Variance = X
OPERATIONAL
Actual total cost X
Actual production at revised cost X
Variance = X
USAGE/EFFICIENCY:
PLANNING
Actual production at revised quantity
Actual production at standard quantity
= X ‘x’ standard cost
Variance = X
OPERATIONAL
Actual total quantity X
Actual production at revised quantity X
= X ‘x’ standard cost
Variance = X
Thanks! 馃檪
USAGE
SQ*SP (Std Qty x Std Price)
*PLANNING*
RSQ*SP (Revised Std Qty x Std Price)
*OPERATIONAL*
AQ*SP (Actual Qty x Std Price)
TIPS: Always @ Std Price – because we are comparing Qty usage here
DO NOT FORGET: We always calculate Std Qty @ ACTUAL OUTPUT
No need to thank, cuz sharing is caring ?
BUT do understand the logic of Mr John before using this shortcut.
Hey Sir, hope you’re well.
For the planning and operational variances, if there were a choice between actual hours paid vs actual hours worked which one should we choose?
It depends on what variances were being asked for. However with planning and operating variances then almost certainly hour paid and hours worked will be the same (and there will not be any idle time).
Greetings sir,
Why don鈥檛 I find a section included for the planning and operational variances for sales – Market share variance (operational) and Market size variance (planning) ?
John, am I correct in thinking that the budgeted production levels are irrelevent in examples 1 & 2 of this topic?
Thanks for all these lectures by the way, they’re helpful for a bloke from Manchester studying in Australia!
Yes, you are correct.
Just as with basic variances in the previous chapter, the expense variances are comparing actual costs with standard costs for the actual production (not the budgeted production).
That’s a great way of putting it John cheers.
I don’t suppose you have another succinct way of explaining efficiency/usage variances by any chance?
Thanks again.
Thanks John. Well explained. Planning and operational variances are calculated for labour and materials making comparisons between the original budget and the revised budget.
Planning = original budget Vs revised budget
Operational = actual performance Vs revised budget