Question

1.What is the purpose of variance analysis?

2.What is the difference between a Volume variance and Revenue/Spending variance?

3. What is the difference between Material Quantity variance and Material Price variance?

4. what are the differences between Direct Labor efficiency and Direct Labor rate variances? And Variable Overhead efficiency and rate variances?

5.Who in the organization should managerial accountants question about each type of variance?

6.What are the variance explanations used for?

Answer 1

1. PURPOSE OF VARIANCE ANALYSIS:

variance analysis represents the deviation between the actual and budgeted performance of the company. and it is helpful for making an efficient decision by the manager and also it acts as a control mechanism.

2. Difference between revenue and volume variance:

Revenue variance represents the deviation of the amount of revenue between actual sales and standard sales, if actual revenue is more than standard revenue than represent favorable variance or if actual revenue less than budgeted than that is shown as an unfavorable variance.

while volume variance represents the amount of difference between actual quantity sold and budgeted quantity sold and the difference multiply by the standard rate.

3. material quantity variance represent the amount of actual material used and the standard amount of material used.

Formula: (Actual material - standard material for actual output) * standard rate

material price variance represents the amount of difference between the actual price on material with a standard amount of material should be used on the material.

Formula : (standard price-actual price) * Actual quantity

4. labor price variance represent the efficiency of labor when compare actual performance with budgeted performance and labor rate variance shows the rate of labor used to pay while comparing the actual rate and standard rate. and variable efficiency rate and efficiency variance are similar to rate and labor efficiency variance.

5. in an organization managers finance and cost should managerial accounts question about each type of variance.

6. variance analysis represents the deviation between the actual and budgeted performance of the company. and it is helpful for making an efficient decision by the manager and also it acts as a control mechanism. and it is also used for forcasting budget for the future.