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# A General Model for Variance Analysis

Variance Analysis

## Materials price variance Materials quantity variance

Labor rate variance Labor efficiency variance
VOH spending variance VOH efficiency variance

## McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

A General Model for Variance Analysis

## Actual Quantity Actual Quantity Standard Quantity

× × ×
Actual Price Standard Price Standard Price

## McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

A General Model for Variance Analysis

## Actual Quantity Actual Quantity Standard Quantity

× × ×
Actual Price Standard Price Standard Price

## Actual quantity is the amount of direct

materials, direct labor, and variable
manufacturing overhead actually used.

## McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

A General Model for Variance Analysis

## Actual Quantity Actual Quantity Standard Quantity

× × ×
Actual Price Standard Price Standard Price

## Standard quantity is the standard quantity

allowed for the actual output for the period.

## McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

A General Model for Variance Analysis

## Actual Quantity Actual Quantity Standard Quantity

× × ×
Actual Price Standard Price Standard Price

## Actual price is the amount actually

paid for the for the input used.

## McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

A General Model for Variance Analysis

## Actual Quantity Actual Quantity Standard Quantity

× × ×
Actual Price Standard Price Standard Price

## Standard price is the amount that should

have been paid for the input used.

## McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

A General Model for Variance Analysis

## Actual Quantity Actual Quantity Standard Quantity

× × ×
Actual Price Standard Price Standard Price

## (AQ × AP) – (AQ × SP) (AQ × SP) – (SQ × SP)

AQ = Actual Quantity SP = Standard Price
AP = Actual Price SQ = Standard Quantity

Instructions:

## You can solve the problems by using above

methods.
Or
You can use formula which are available in the
next slides.

## McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

Material Variances:
Using the Factored Equations

Formula Method:
Materials price variance
MPV = AQ (AP - SP)
Materials quantity variance
MQV = SP (AQ - SQ)

## McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

Labor Variances:
Using the Factored Equations

## Labor rate variance

LRV = AH (AR - SR)
Labor efficiency variance
LEV = SR (AH - SH)

## McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

Variable Manufacturing Overhead
Variances: Using Factored Equations

## Variable manufacturing overhead spending variance

VMSV = AH (AR - SR)
Variable manufacturing overhead efficiency variance
VMEV = SR (AH - SH)