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Variance Analysis | Chapter 8

Forums › CIMA Forums › Variance Analysis | Chapter 8

  • This topic has 0 replies, 1 voice, and was last updated 6 years ago by abbasisaeed.
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  • February 22, 2019 at 7:33 am #506052
    abbasisaeed
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    • Topics: 14
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    “If inventory is valued at standard cost, then the calculation should be performed using the quantity of materials purchased. This will ensure that all of the variance is eliminated as soon as purchases are made and the inventory will be held at standard cost.

    If inventory is valued at actual cost, then the calculation should be performed using the quantity of materials used. This means that the variance is calculated and eliminated on each item of inventory as it is used up. The remainder of the inventory will then be held at actual price, with its price variance still ‘attached’, until it is used and the price variance is calculated.”

    I’m having a bit of problems understanding and interpreting these 2 paragraphs. If you could please help me understanding this. It’ll be great.

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