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Planning and Operational variances (part 1) – Variance analysis – ACCA Performance Management (PM)

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  2. Hi, firstly thank you so much for your lectures. You clearly have done this for many years and therefore are able to make things SO clear when you explain them down to the words you choose and the way you break things up so well.

    I’m sitting this exam in March 2023. Is this still the best method to use currently?

    Thanks again!

  3. Dear John,

    Would it be right to say about Planning and Operational variance that Planning variance compares the standard budget with flexed budget. And the operational variance compares the flexed budget with the actual performance.

    • No, it would not be right. The flexed budget is only the original budget adjusted for the actual level of activity. With planning and operational variances we revise for changes in the standard costs etc..

  4. hello sir I am really thankful because i get open tuition,
    the lecture is really digestible , however as usual I have a question,
    1,why planning and operational variance sum is compared to variance analysis and how it is related with accessing the mangers problem or operational problem?

    • One of the main reasons for doing variance analysis is to see how well (or badly) managers are doing their job. As an example, if the purchasing manager is paying more than was budgeted for materials then it looks bad. However, if the reason is that the supplier increased prices it is not fair to blame the purchasing manager. Operational variances compare what was actually paid with what they should realistically have paid (after taking account of the increase in prices) rather than what was originally budgeted.

  5. Hello Sir!
    I wanted to ask why are we comparing the actual cost with the revised cost in Operational Variance, as the actual cost is the one which has been occurred where as the revised cost is the one which has been found after the production has been taken place. Can you please tell me what is the reason for this comparison?

    Thanks in advance.
    Jatin

    • The revised cost is the new standard cost and is revised because for whatever reason the original budgeted cost was not realistic. For example, it could be as simple as suppliers have increased their prices. We separate planning and operational variances in order to identify anything that has gone wrong in operations.

  7. Hi, with reference to example 1, in operational variance calculation for usage, why did not use the revise change in price per kg rather than the standard price per kg? Since we have been knowledge that the price has been changed.

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