Skip to contentSkip to search
Sign inRegister

ACCA PM · Guided practice (Show me how)

Chapter 14: More variance analysis

Planning and operational variances - separate the out-of-date standard from performance

Part 1 - materials. Original budget: standard cost of materials 10 kg at $5 per kg; budget production 10,000 units. Actual results: production 11,000 units; materials 108,900 kg at $4.75 per kg. Since preparation of the budget the price per kg has changed to $4.85 and the usage to 9.5 kg per unit.

Calculate the expenditure and usage variances, and analyse each into planning and operational variances.

Part 2 - labour. Original budget: standard cost of labour 8 hrs at $4 per hour; budget production 20,000 units. Actual results: production 24,000 units; labour 190,000 hrs for $769,500. Since preparation of the budget the price per hour had increased to $4.10 and the time had been revised to 7.5 hrs per unit.

Calculate the rate of pay and efficiency variances, analysed into planning and operational variances.

Method as in the notes: price (rate) variances use the ACTUAL quantity (kg or hours); usage (efficiency) variances are valued at the ORIGINAL standard price ($5 per kg, $4 per hour). Sign convention: favourable = positive, adverse = negative.

  1. (a) Materials expenditure, split

    Calculate the company's materials expenditure variance and its planning and operational components for the period.

  2. (b) Materials usage, split

    Calculate the company's materials usage variance and its planning and operational components for the period.

  3. (c) Labour, split

    Calculate the company's labour rate and efficiency variances and their planning and operational components for the period.

Opening this exercise…