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BPP Kit 2016/2017
Question 191. Why are we converting the materials into monetary value using the budgeted cost of $4/kg and not the revised $5/kg. Isn’t this the whole point of operational variances? (Revised v Actual)?
They applied the same logic on operational labour efficiency as well.
Kindly clarify why we are using the budget and not the revised cost after all, we’ve considered factors beyond us in arriving at the revised cost.
Production managers may not be pleased with this the way I see it.
Your point is valid. The problem is that there are two different ways of calculating planning and operational variances. They give different answers, but there is a logic to both (and using either method gets full marks in the exam, even though they give different answers).
The previous examiner preferred one method but the current examiner prefers the other method and the way I do it in my lectures is the way that the current examiner prefers. It is also the easiest way (which matters in terms of passing the exam 🙂 ). The current examiner prefers this way because the planning and operational efficient variances add up to the total efficiency variances (and the same for the rate variances). That is not the case with the other method.
Sorry if this is confusing – it is not my fault 🙂 But again, the way I do it in the lectures is the easiest way and the way that the current examiner prefers.
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