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I have attempted the December 2012 Question 2 on Planning and Operational Variances and i would just like to know if my solution is acceptable since my solution differs a bit from the solution provided by ACCA.
My Total Traditional Labour Cost Variance of $13,800A is the same as the solution when the Total Labour Rate and Labour Efficiency is totalled but the sub variances does not reconcile with ACCA’s solution.
The following are my answersBASIC VARIANCES
1.) Total Labour Rate – (12000 hrs x $12) – $136,800 = $7200F
2.) Total Labour Efficiency – (20500 units x 0.5hrs) – 12000 hrs x $12 = $21,000A
TOTAL LABOUR COST VARIANCE = $13,800APLANNING VARIANCES
Rate:
20500 units x 0.5hrs ($12 – $11.40) = $6150FEfficiency:
20500 units (0.5hrs – 0.6hrs) x $11.40 = $23,370AOPERATIONAL VARIANCES
Rate:
(12000 hrs x $11.40) – $136,800 = $0Efficiency:
((20500 units x 0.6hrs) – 12000 hrs x $11.40) = $3420FMy concern is that I’ve noticed on the ACCA solution that the Labour Efficiency Planning and Labour Efficiency Operational Variances reconcile with the Basic Labour Efficiency Variance and my answer is not reconciling like that. So am I doing something wrong? Or is my answer acceptable they way it is?
The problem is that there are two ways of calculated planning and operational variances.
All of the Study Texts do it one way (the better way) but the examiner suddenly decided to do it a different way (which is a less sensible way!).
However, either way is acceptable in the exam (even though they give different answers).
To see the correct answer doing it your way, watch the following lecture (where I go through it):
https://opentuition.com/acca/f5/f5-december-2012-question-2-planning-and-operational-variances/
I understand it better now. Your demonstration in the lecture is the same way i know how to do it. Do you think i should be familiar with both methods for the exam?
Note: Just an observation in your lecture. For the Labour Rate Planning Variance, $140,220 – $147,600 = $7,380F but you used $7400F. Can you explain why?
I will have to check – it sounds as though I have made an arithmetic mistake.
Sorry 🙁
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