Analysing planning variance

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.

Thanks alot

You are welcome :-)