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Sir, I have seen your lecture but I had a feeling that I am not correct here completely. Please correct me If I am wrong>?
Planning variance occurs when there is revised plans in the original budget due to changes in market conditions such as prices went up; cheaper material being bought; unskilled labour and as such.
Planning variance is useful for providing feedback on how skilled management is in estimating future prices. This is realistically very easy in some businesses and very difficult in others.
Operational variance is how good or bad the manager is performing due to changes in market conditions. It is more meaningful because it measures the purchasing and production departments managers how efficiently they are working in the current market conditions.
Planning variance represents the uncontrollable element for the managers and they should not be held responsible. Operational variance represents the controllable element for the managers and it is in their hands so they should be responsible for their performance.
[Planning variance compares original standard with revised standard]
[Operational variance compares revised standard with actual]What you have written is fine (although in the third paragraph you should refer to estimating future costs, not future prices).
Thank You 🙂 Could you also say whether is it correct or not please?
Planning and Operational variances are calculated for Sales, Material and Labour only which will be tested in paper PM.
Planning variances:
Material Price:
(Standard Price in Actual Production)
(Revised Standard Price in Actual Production)Material Usage:
(Standard Production in Standard Price)
(Revised Standard Production in Standard Price)Operational variances:
Material Price:
(Standard Price in Actual Production)
(Revised Standard Price in Actual Production)Material Usage:
(Revised Standard Production in Standard Price)
(Actual Production in Standard Price)
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