Variance Analysis

Activity Variance

Planning budget & flexible budget needed to compare

Activity variance method

subtract planning from flexible budget and label with F or U. Fixed costs will have no change -

Activity Variance

Planning budget & flexible budget needed to compare

Activity variance method

subtract planning from flexible budget and label with F or U. Fixed costs will have no change -

Revenue variance

flexible budget revenue and actual revenue

Spending variance

flexible budget cost and actual cost

What is spending variance split up into?

Quantity variance (difference between actual quantity and standard quantity) and price variance (difference between actual price and standard price)

Standard quantity

volume of inputs that should be used to make a product or provide a service

Standard price

the price that should be paid for each unit of input

General model for analyzing spending variances

List possible reasons for labor variances

• Employee motivation
• Is assigned tasks matching employee skill level? Is it the same throughout all employees?
• Are employees being properly supervised?
• Do employees receive adequate training?

What happens when materials purchased in a period are not used in the production process during that period?

Quantity variance: base it on quantity used

Price variance: entire quantity purchased