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Hi john sir:
Q.1 . Why do we multiply material usage variance or labour efficiency variance with standard rate? why do not with actual?
Q.2. John sir , look at the following trend equation:
x= 24000 + 3500q
Where x = no of passengers
and
q = time period (year 1 quarter 1: q=1)
(year 1 quarter 2: q=2)
(year 2 quarter 1: q=5)Required: Determine expected no of passengers to be carried in the 3rd quarter of year three.
John sir i solved it in the following way: x = 24000 + 3500(11)
But john sir my question is by this way i will find the 11th quarter no of passengers or passengers for 11 quarters. I think that we will find out the accumulated quantity of of passengers for 11 quarters. but question ask for only 3rd quarter passenger. The question is also solved in the same way as i solved here. but i am confused. please guide me
Q1 for usage and efficiency variances we are looking only at the effect of using the wrong amount of material and working the wrong number of hours. The effect of paying the wrong price is considered separately when we calculate the expenditure and rate of pay variances.
Q2 you are wrong to assume that the equation is giving the cumulative number of passengers. Unless a question specifically said that, then you would assume that the equation gives the number for that particular quarter. (If you look at the equation, it would actually be rather unlikely anyway 🙂 )
Thanx for your very kind reply john sir.
But john sir why do we not look the effect of using the wrong amount of material on the base of actual rates? your reply made a concept but a litle bit still confusion.
John sir plz say it in easy words actually i am not english so couldn’t understand what did you say actually. (if you look at the equation, it would actually be rather unlikely any way)
THANX FOR YOUR COPERATION SIR
There are two reasons for the total spend on materials being different from budget.
The first one we look at is the amount used – that is the usage variance. Then we look separately at the price paid – this is the expenditure variance.
You could create your own way of doing it in real life – there are no rules in management accounting! We do what is most useful for us.
However for exam purposes we do it the standard way (and, of course, the usage plus the expenditure variances must add up to the total variance that we are analysing).
I assume that you have watched my lecture on variance analysis?
Thanx alot john sir, i got it now. Thanx again. yes i am watching lectures. Thank you
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