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Hi Mike, please i was trying to analyse the total planning variance of $5830 (A) just out of curiousity but my total variances did not equal $5830 A.
The question is in the Opentuition note. More variance analysis, example 1. The planning variance is from the operating statement.My calculated PLANNING VARIANCES
Material rate variance Labour rate Sales
Revised–5150L @$.95 = $4892.5 10200hrs @2.60 = $26520 (4500-5000) *$8.60
Std— 5150L @$1 = $5150 10200hrs @2.50 = $25500 = ($4300A)
Variance is $257.5 (F) Variance is $1020 (A)Usage variance
5200u @1.2L= 6240L
5200u @1L = 5200L
Variance = $1040(A)Sorry the first one is not readable. this is a bit clear. Thank you for your assistance.
My calculated PLANNING VARIANCES
Material rate variance
Revised–5150L @$.95 = $4892.5
Std— 5150L @$1 = $5150
Variance is $257.5 (F)Usage variance
revised–5200u @1.2L= 6240L
Std—– 5200u @1L = 5200L
Variance = $1040(A)Labour rate
revised–10200hrs @2.60 = $26520
std—– 10200hrs @2.50 = $25500
Variance is $1020 (A)Sales variance
(4500-5000) *$8.60 =($4300A)Why do you say “Hi Mike”????
We do use a tutor called Mike, but he only teaches some of the papers – he does not teach F5 !!
The problem with your analysis is that you have effectively included the change in sales twice.
What you need to do is calculate the planning variances as though the sales/production stayed at 5,000, and then separately calculate the planning variance for the changes in sales/production.
Material rate variance
Revised–5000 x 1.2 = 6000L @$.95 = $5700
Std— 5000 x 1.2 = 6000L @ $1 = $6000
Variance is $300 (F)Usage variance
revised–5000 X 1.2 = 6000L
Std—– 5000u X 1 = 5000L
Variance = 1000L X $1 = $1000 (A)Labour rate
revised– 5000 x 2 hrs = 10000 hrs @ 2.60 = $26000
std—– 5000 x 2 hrs = 10000 hrs @ 2.50 = $25000
Variance is $1000 (A)Sales variance
(4500-5000) *$8.26 = $4130 (A)Total = 700 (F) + 1000 (A) + 4130 (A) = 5830 (A)
Hope that helps 🙂
Thanks alot John. sorry for callling you Mike. i had in mind to ask two questions, one Mike(F4) and one to you about F5. I now understand why my calculation was wrong. I get it now. Thanks, Your the Best!!!!!!!!!!!!
Hi John, i have one question about planning variances, some questions calculate using actual production but others use budgeted production (as you stated above). how do we know which one to use.Thank you
You can use either – there is no ‘best’ way (and the examiner said in an article that either was acceptable even though the answers will be different).
I would normally use actual production – the example above is an unusual one.
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