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PM Chapter 14 Questions More variance analysis

VIVA

 

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  1. Good morning! Sir. Is market size and market share variances relevant to the upcoming March 2023 exams? Based on your lectures and notes on variance analysis you’ve not tackled anything on these.

    Do you recommend that I read and practice on these subtopics?

    • They could be asked in March (although they are not asked very often). You will find one or two questions in your Revision Kit, and do not really require extra studying. If you are not clear about anything in the answers to the questions then ask in the Ask the Tutor Forum.

  2. Sir,.
    I didn’t understand question 2, could you plz explain?? I got 75000 Adverse !!

    $16.666 (1.5 hour x 100/90 x $15) is adjusted for Idle time & we multiply this with 5000 hours to get $83.333 (Adv) . Is that it??

    It means we do calculate Idle time in hours!! But why did we deduct the 3000 hours then?

    • You can have a favourable mix variance by using more of the cheaper material and less of the more expensive, but at the same time you can have an adverse yield variance because of using more material in total than you should be using.

  4. For Q2, to calculate the standard rate for hours worked, can we first calculate the standard cost per unit and divide that with the actual hours worked (like how you have explained in Example 5 of Lecture videos)?
    If so, standard cost per unit would be
    1.65hrs x $15/hr = $24.75
    Therefore, the standard rate for hours worked would be $24.75/1.5hrs = $16.5

    But when we do it $15 x 100/90, the same answer wouldn’t come, and frankly I don’t understand why we are doing the 100/90 either.
    Please explain what I am missing

    • What you have written is not as I explain in example 5 and I do suggest that you watch the lecture again.

      For every 100 hours paid, they will be idle for 10 hours and will therefore work for 90 hours.
      Putting it the other way round, for every 90 hours worked they will need to pay for 100 hours.

      Therefore, if they need to work for 1.5 hours, they will need to pay for 100/90 x 1.5 hours.

      That is the same as I do in the example, except that the idle time is 5% and therefore we multiply the hours worked by 100/95 to arrive at the hours paid.

  6. hello sir
    as you said in the lectures it is about understanding not following the rules, i seem to be confused with question 3 though, to find the sales volume variance do we compare the actual sales at standard profit pu/contribution pu and budgeted sales at standard profit pu/contribution pu

    • why are we using standard mix for actual total giving $148500 instead of actual sales at standard contribution giving $156000 for q3
      in the lectures we had a similar example ie example 4 were we were calculating the sales volume variance and i followed the we did it but i`m getting a wrong answer. is it because we cant just follow a formula/rules? i really don`t understand sir

    • I am a bit puzzled by your questions, because question 3 is asking for the sales quantity variance (not the volume variance), and question 4 is asking for the sales mix variance (not the volume variance).

    • Q2: I think For actual unit ,Labour hour should take (1.5/.90)*20000=33333.33
      They actually paid hour of =38000
      Variance =4666.67(a)*12
      please explain..is my understanding right or wrong?

      • Labour efficiency variances measures the relationship between the time taken to produce the actual unit or level of production or activity and the standard , the varience in unit is multiply at the standard rate in $.
        In this case.
        20000 unit should takes 30000hrs (1.5hrs*20000units).
        But did takes 35000hrs (38000-3000)
        Therefore variance in units is 5000hrs adv.
        In dollars $ 75000 adv (I.e 5000hrs*$15)

        I guessed.

      • Whoop, until I have finished my quiz then the solution said that the standard rate is based on actual and it didn’t makes an adjustment for idle time for we were required to do ourself.
        Therefore it should be.
        $75000*(100/90)= $83333.

  8. Question 2:

    Why is the derivation of the ‘derived actual rate of pay’ 15 * 100/90 rather than 15 * 110/100?

    The object takes 1.5 hours to make BUT the employees are taking 1.5 * 1.1 hrs to complete. The idle time is not implied within those 1.5 hours as that is stated as the duration of production (refer to the word ‘should’).

    Why am I wrong?

    • The question specifically says that idle time is 10% of the hours paid.

      For a full explanation you need to watch my free lectures on advanced idle time variances – I cannot type them all out here.

  9. Sir I have a query that I desperately need helps with. There’s a question on minimax regret in the textbook.

    Now base on the video u posted I understand that the table is a table of regrets

    And following your teachings I was able to work out the regret table

    However I don’t understand the last scenario

    Why is the 105 under D is a positive

    If I choose D with a loss of 20 over a profit of 85 isn’t that double loss

    Shouldn’t the 105 be a negative or a total of losses

    Please refer to tx book question and answer below

    A company has three projects to select from

    Projects
    D. E. F

    Scenarios
    1. 100 80 60
    2. 90 120 85
    3. (20) 10 85

    Answer

    Pay off table

    Projects
    D. E. F

    Scenarios
    1. 0 20 40
    2. 30 0 35
    3. 105 75 0

      • Sir where do I have to go to get answers to this one particular question. I wrote open tuition on Facebook i was told I need to speak on the forum so that the whole community can benefit. I did that. And posted my question on this link below. Under the topic my question relates. Risk and uncertainty.

        https://opentuition.com/acca/f5/f5-chapter-10-questions/

        I got no response. I posted other question subsequently which was answered but not this particular one. I felt the lecturer did not see my question but since I was getting a response to my other question posted here I decided to repost my initial query her hoping I get some clarification.

    • I tried but unable to work my way around the ask the tutor forum. However thank you for time and patience with the help given. I have work all the f5 test questions three times at different time periods to ensure I remember what I understand and I’m fully clear on your guidance and help given through the lecture notes and test question.

  10. Sir, I work question 2 on variance analysis and im unable to solve one thing.

    base on your videos there the break down of a variance should add back to the overall variance and in this situation I cant seem to get it

     

    please see my working and tell me what am I doing wrong.

    The example in your video on idle time variance is exactly the same as this eg. And following your guidance the answer im getting is below

     

    10% idle time means the company is paying more than 1.5 hour to produce one unit.

    Therefore 100/90*1.5 = 1.67 hours for one unit @ a cost of $15 per hr.

     

    Therefore labor cost per unit = 1.67*15 = $25

    Labour cost per hr worked = 25*1.5 = 16.7

     

     

    Overall labor variance is:

    20000 units cost (@25) = 500,000

    But costed  520000

    ———————————————-

    Variance of 20,000 (A)       

     

    1.Rate of pay variance

    38000 hr should have costed (@15) = 570,000

    But costed  = 520,000

    ———————————————-

    Variance of 50,000 (F)       

     

    2.Effeciency variance

    20,000 units should have (@1.5 hr)  30,000

    But took (38000-3000idle) = 35,000

    ———————————————-

    Variance of 5,000 (A)  

    X the rate of pay ($16.67) = 83,333 (A)   

     

    3.Idle Time variance

    Standard idle time (38000*10%) = 3800

    Actual idle time = 3,000

    ———————————————-

    Variance of 800 (A)  

    X the rate of pay ($16.67) = 13,336   

     

    Rate of pay variance – 50,000 (F)       

    Effeciency variance – 83,333 (A)   

    Idle Time variance – 13,336   

    Overall Variance = 46,669

     

    The overall variance calculate above is 20000A but when I did the break down of the variances I cant seem to come back to 20,000A unless the 20000A is wrong.

    Please help

      • Idle time is always ‘lost’ money, but is built into the costings. The idle time variance can therefore be either adverse or favourable (in this case favourable).

      • Hi Sir,

        I am using Kaplan June 2018 exam version and it says Idle time variance is:
        (Actual paid @ SR) – (Actual worked @ST)

        So therefore if I use the Q2 example, I would get an Idle time Variance of (38000hrs paid – 35000hrs worked) * £16,67 = £50,000 A
        I dont understand how and why you get £13,333 as the Idle time variance.

        PS: I have watched all you videos.

      • That ‘formula’ is only true when idle time has not been budgeted for (which is the case in Paper F2 variance questions).
        When idle time has been budgeted for you need to compare the actual idle time with the budgeted idle time.

  12. sir with regard to question2,it is asking the labour efficiency variance but the question solved above included idle time.i just want to know why the efficiency of labour is judged by ideal time.it is not making sense.

      • sir in question2 i want to know that why you have done 15/90*100 it increases the value mean you have included ideal time pay on it..i am doing it like this 15/100*90 so value comes out is 90%.plz explain this why i am wrong.

      • Tell me – have you watched the lectures on this?

        It is not ideal time – it is idle time which does not mean the same thing.

        Also, you say that you have taken 15/100*90 and that I have taken 15/100*90 and so I don’t understand the problem 🙂

    • You have calculated the sales volume variance.

      The sales quantity variance compares actual sales at standard mix with budget sales.

      The standard mix is the mix in the budget – i.e. for 10,000 total sales, 7,000 were X (i.e. 7/10), and 3,000 were Y (i.e. 3/10)

  14. Back to Q2: So the standard time already includes the idle time? The way I worked it out is:

    1.5 hrs x100/90 = 1.66 hrs

    I then took the actual hours less idle time x std rate = 35000 x €15 and then subtracted the standard hours (20000 units x 1.66 hrs) x std rate of €15.
    I got a variance of €27000A

    I have watched the lecture and first you found the hours paid for then you found the standard work rate…

    What am I missing?

    • Do in future say which of the 5 questions you are asking about!!!

      $15 is the standard rate of pay, but there is idle time and so the cost per working hour is higher.

      You need to watch the free lecture on advanced idle time variances.

  16. Hi

    The Q with $83,333 Adverse is only productive efficiency variance, not labour efficiency variance, which would be the sum of $83,333 AND labour excess idle time variance (which in this case would be 800 * $16.6 = $13,336 favourable). I used Kaplan as well, so I’d like to know your opinion on this Question.

    Thanks in advance, I appreciate your time!

    Rita

    • 83,333 is the labour efficiency variance. The excess idle time variance is separate and is not part of the 83,333!
      (The excess idle time variance is ( (10% x 38,000) – 3,000) x $15 x 100/90 = $13,333 (favourable).)

      Watching our free lectures on this will help you.

    • I assume you mean question 2, in which case the question says that 10% of the time is idle.
      Therefore 90% (or 0.9) of the time paid is actually worked.

      I do suggest that you watch the free lectures on the chapter before attempting the practice questions.

      • thanks john.. it all made sense after i looked at the lecture. however i have another question, for the sales mix variance, i got the 7500. i know it is favorable, however in applying the ‘rule’ top minus bottom i am getting 7500A (sales at standard mix – actual sales 148500-15600= -7500A) what do you advise?

      • You should not learn it in terms of ‘rules’. You should think as to whether it is earning more or less and therefore will result in more or less profit. If less profit it is adverse, if more profit it is favourable.

  19. Hi could you help me with the following question please:

    A company produces units that should take 1.5 hours to make.The standard rate of pay is $15 an hour. Idle time is expected to be 10% of hours paid.
    They actually produced 20,000 units. They pay $520,000 for 38,000 hours of which 3,000 are idle.

    what is the labour efficiency variance.

    thanks!

    • Have you watched our free lectures on advanced idle time variances?

      They should work 20,000 x 1.5 hours = 30,000 hours
      The actually worked 38,000 – 3,000 = 35,000 hours.
      So they are inefficient by 5,000 hours.

      This is costed at the labour rate for hours worked, which is 15/0.9 = $16.6666 per hour.

      So the variance is 5,000 x $16.6666 = $83,333 adverse

      • Why are we not comparing 27000 (30000-10% expected idle time) with the 35k hours.
        Or do we ignore the budgeted idle time in calculations like this?

        Thanks.

      • The budget idle time is of no relevance when calculating the efficiency variance. We compare the hours actually worked with the standard hours for the actual production.

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