...Advanced Variance Analysis: Calculation and Interpretation Subject: Professional 1 Strategic Management Accounting. Variance analysis is examinable both at Formation 2 (Management Accounting) and at Professional 1 (Strategic Management Accounting) levels. One main difference in syllabus between the two papers is that the Professional 1 (Strategic Management Accounting) syllabus includes ‘advanced’ variances, as follows: • • • • Materials mix & materials yield variances; Sales mix & sales quantity variances; Planning & operational variances; Market share & market size variances. Two issues which students need to master in order to score well in a question on advanced variance analysis are: 1. Accurate knowledge of the formulas. In my experience, examination candidates are much more likely to remember the formulas correctly if they understand the relationship between ‘advanced’ variances and ‘basic’ variances. Therefore, this will guide my approach to the examples in this article. 2. Ability to write a good quality narrative interpretation of the causes of the variances. The golden rule here is that it is not adequate to explain each variance in isolation. Thus, it is not enough to write (for example) ‘this company had an unfavourable market size variance because its actual market share was less than its budgeted market share’. You need to explain the apparent reasons why their actual market share was less than their budget market share, and...
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...PAPER NOT MINE. DIRECT MATERIALS VARIANCES: Materials purchase price variance Formula: Materials purchase price variance = (Actual quantity purchased × Actual price) – (Actual quantity purchased × Standard price) Materials price usage variance formula Materials price usage variance = (Actual quantity used × Actual price) – (Actual quantity used × Standard price) materials quantity / usage variance formula Materials price usage variance = (Actual quantity used × Standard price) – (Standard quantity allowed × Standard price) Materials mix variance formula (Actual quantities at individual standard materials costs) – (Actual quantities at weighted average of standard materials costs) Materials yield variance formula (Actual quantities at weighted average of standard materials costs) – (Actual output quantity at standard materials cost) DIRECT LABOR VARIANCES: Direct labor rate / price variance formula: (Actual hours worked × Actual rate) – (Actual hours worked × Standard rate) Direct labor efficiency / usage / quantity formula: (Actual hours worked × Standard rate) – (Standard hours allowed × Standard rate) Direct labor yield variance formula: (Standard hours allowed for expected output × Standard labor rate) – (Standard hours allowed for actual output × Standard labor rate) FACTORY OVERHEAD VARIANCES: Factory overhead controllable variance formula: (Actual factory overhead) – (Budgeted allowance based on standard hours allowed*) ...
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...Variance Analysis A manager of a variable hospital department has many responsibilities. The manager is accountable for budgeting and to protect profits. The financial manager is responsible for guarding overspending and generating profits. They are active in the budgeting process throughout the fiscal year. The budget department manager communicates with other managers, and accounting departments concerning budget issues, financing, and concerns in the organizations departments. Sometimes situations occur whereas payroll salaries are high and supplies are lower than planned and budgeted. The budget manager is responsible for providing feedback about finances, revenue, and any potential variances in the budgeted costs. This essay will be based on a scenario of salaries that were higher and supplies lower than initially budgeted. This paper will explore variances in the scenario mentioned earlier, and explain the relationship between variance reporting, interpreting variance reporting results, and the results of performance within a health care organization. The hospital variable department has experience a case in which employee salaries are higher than budgeted, while the supplies are lower than initially budgeted. This is the result of an epidemic of asthma patients who were admitted to the hospital over the last three months. The hospital approved overtime to assist in the growing number of patients and to accommodate their needs. In the process of caring for patients more...
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...Sharrain Walls Variance Analysis Grand Canyon University: HCA-530 July 5, 2016 Introduction Various reports help with viewing and keeping track of the productivity of a department. Managers find these reports very helpful with assisting to find an issue, trend, overspending, and underspending. A report commonly used is a variance report, which compares the planned amount to the actual amount. This report is critical in determining major decisions and viewing fluctuations. The report can be in the form of a table or graph and can be considered favorable or unfavorable based on the results. Vice Presidents look for the report to be clear and direct. Managers should include all factors associated with the variance report as well as the relationships between variance reporting, interpreting variance report results, and actual reports. Variance Analysis When viewing the results of the report consider the hospital size and utilization of the services offered by the hospital. When performing a variance analysis, relationships can be identified. Favorable (positive) and unfavorable (negative) correlations are critical in business planning. An example would be, variance analysis may show that when sales for product a rise in sales for product B. This type of relationship may be used for success of other products (Cross, N.d.). When using a variance report for forecasting variance data allows managers to identify factors such as seasonal changes for the favorable and unfavorable...
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...Variance analysisCh 8 Variance analysis The complete list of common variances, together with some potential causes, is as follows: The variance and its calculation | Potential causes of the variance | Material variancesMaterial price variance:Amount of material actually used at actual price compared to what that amount of material should have cost if bought at standard price/unit. | * Wrong standard cost/unit of material * The price of material changed since the standard was set * Exchange rate movements affecting the price of imported material * Poor/excellent buying decisions and negotiation | Material usage variance:Amount of material actually used compared to the standard amount that should be used for the actual output achieved, evaluated at the standard cost | * Wrong standard usage/unit of production * Material of a different quality being purchased (yield affected) * Poor/excellent use of material * Poor/excellent maintenance of machines | Labour variancesLabour rate variance:Amount of labour actually paid for at the actual hourly rate compared to what that amount of labour should have cost if bought at standard hourly rate. | * Wrong standard rate/hour * Unexpected rate of wage inflation * A different mix of labour | Labour efficiency variance:Amount of hours actually worked compared to the standard amount that should be worked for the actual output achieved, evaluated at the standard rate per hour. | * Wrong standard hours per...
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...9/1/13 Tirizia York Variance Analysis A variance report involves a way for business executives and department managers to approximate their company’s performance. By examining one set of figures against another, and comparing the planned amount to an actual amount. In the proceeding paragraphs, I will explain how to give a detailed variance report analysis to the vice president of the hospital where I work at, explaining the factors that led up to my salaries for the previous month being higher than the supply figures on my budget reports. It’s the beginning of the month and as I sit at my desk reviewing my previous month’s budget report, I see where my budgeted salaries in my department alone are higher than the supply cost for the previous month. Then while sitting there it comes to me that I have a variance report due to the vice president of my department next week, where will have to give an explanation as to how for the month of June my salaries are higher than my supplies. I see this is going to be a long day so off to the break room to grab a cup of water, and my coffee close my office door and turn on some soft music and” let’s get started”. The first thing on the agenda is to is to run an analysis report that shows the number of employees worked and production along with what supplies were used and the costs of the supplies used. After importing the data on my excel spreadsheet and reviewing the items in red are representing variances with a plus or minus...
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...Variance Analysis HCA-240 Variance Analysis The many reasons as to why the budget for this month has gone over have many factors involved. For a $5,000 favorable variance on staffing, the department head can state that the company was able to obtain a 25 % discount from a new supplier, which resulted in a savings for the department. Another example would be when you have a $25,000 unfavorable variance in sick time for many employees, the department head would state there was an outbreak earlier in the season and this was not expected, resulting in hourly and sick time expenses that were not anticipated. What we can do, would be to analyze variances by the month, quarter or year. Having budget variances in place can allow at least two sources the things that can be controlled and things that cannot. This time I know that the reason the salaries were higher, we because of the recent storm we had and it cause some staff not to show up for work and other to do overtime. Going forward what we can implement would be an emergency team for weather related issues or natural disaster to ensure that we don’t go over our budget and if we see that we are approaching that then we can implement another plan or process, to help balance it back out like giving comp time or early leave. When uncontrollable factors occur many are often external which then result from occurrences outside of the company such as a natural disasters, which can then throw the budget into a downward...
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...Variance Reporting As a manager for a variable department within a hospital, it sounds like I will certainly endure many challenges as it relates to budgeting. But mostly, because I'm faced with the challenge of not having a fixed budget for the department I'm managing. For this purpose I will be the manager of this department with a flexible budget or a variable budget. First we would need to understand what a a variable budget is. Most variable departments run based on luck, because the budget isn't a standard fixed budget its a chance taken each month that expenses will cover each other based on what portions of the budget or under and/or over budget. This sometimes how a variable department operates. We will also examine a variance report. In terms of the budget, a variable budget means that there is no determined dollar amount to allot for certain items in the budget. It is the examination of the deviation of an actual observation from the standard. Of course, in this scenario I don't have to opportunity to have a budget that remains constant, instead I am faced with a flexible budget as it relates to payroll. If I were to receive my monthly budget report and it has imbalanced findings because it is off budget, it would be bit concerning for me. The goal of a financial manager is to provide accurate budgets based on their reporting. Part of my duties include the financial success of the department. Presenting anything that falls short of the projections made by my...
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...terms of the contract. Standard costing is not allowed. ▪ Drives inappropriate activities. A number of the variances reported under a standard costing system will drive management to take incorrect actions to create favorable variances. For example, they may buy raw materials in larger quantities in order to improve the purchase price variance, even though this increases the investment in inventory. Similarly, management may schedule longer production runs in order to improve the labor efficiency variance, even though it is better to produce in smaller quantities and accept less labor efficiency in exchange. ▪ Fast-paced environment. A standard costing system assumes that costs do not change much in the near term, so that you can rely on standards for a number of months or even a year, before updating the costs. However, in an environment where product lives are short or continuous improvement is driving down costs, a standard cost may become out-of-date within a month or two. ▪ Slow feedback. A complex system of variance calculations are an integral part of a standard costing system, which the accounting staff completes at the end of each reporting period. If the production department is focused on immediate feedback of problems for instant correction, the reporting of these variances is much too late to be useful. ▪ Unit-level information. The variance calculations that typically accompany a standard costing report...
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...Variance Analysis To complete the following assignment, go to this week's Assignment link in the left navigation. Volume, Risk, and Price Variances Analyze the variances in the following scenario: You are the nursing administrator for a medical group that expects a severe outbreak of the flu this winter. You hire additional staff to treat the patients and administer shots. Your special project budget was for 1,000 hours of part-time nurses’ services at $40 per hour, for a total cost of $40,000. It was expected that these nurses would administer 400 flu shots and treat 1,600 flu patients. The medical group typically charges $50 for a flu shot and $80 for treating a flu patient. Actually, the group had 1,200 patients who received the flu shot and 1,400 who had the flu and received treatment. On average, it was able to collect $55 per flu shot and $70 per flu patient. Compute the volume, mix, and price revenue variances. How did things turn out for the group considering just revenues? How did they turn out from a profit perspective? Use either the approach from chapter 8 or from Appendix 8-A to solve. Clearly label the calculations of the required variances using Excel. Use formulas to calculate the three variances and format the cells to insert a comma if there is more than three numbers and round to the nearest whole number. Explain the meaning of the variances in a two page Word document. Submit to your instructor your two-to-three page Word document...
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...A variance report is a way for business executives to gauge their company's performance by comparing one set of figures to another. This usually means comparing a planned amount to an actual amount. Companies use variance reports to analyze how close they've come to hitting the sales targets or to see if they've met their budgetary goals. A well-rounded budget variance report will address trends, overspending, and under spending. In the healthcare field variance reports are used in every department of the hospital. Each unit of patient care has a limit and goals that need to be met from the administrators’ position. The framework for cost control is following two approaches is possible: preventive and detection-correction. ( ) On the Intensive Care Unit we are given a strict budget and we over this month. We have to explain why it has been over budget. The Intensive Care unit is an area with very heavy workload and requires a two to one ratio for the care of the patients. With the budget and the twenty five bed floor we are allowed thirteen nurses a shift for the care. In our staff we have eighty-one employees staffed on our roster. With this being said we have many days when or staff is in overtime, which hurts our budget each month. On our unit we get some patients who then turn to one on one patient and at that point we are paying extra for them to be on staff. Changes in our census are another thing we work on as a floor, and try to manage at full census to allow us the...
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...HCA 240 April, 29 2012 Moiz Lalani Variance Analysis Variance Analysis is used to promote management action in the earliest stages. It is the process of examining in detail each variance between actual and budgeted costs to conclude the reasons as to why the budgeted amount was not met (Ventureline, 2012). There are several factors that go into a variance report. One is the assumption of the department. The second is the risk of the assumption. And thirdly the actual expense used to portray the budget. The vice president announces the budget that needs to be met monthly. Upon receiving the monthly budget results, the materials budget was not used properly, and the salary was higher than the planned budget. I will be explaining the reasons as to why the salary bases were higher than the given amount, and the reasons why the materials budget were not met, and also what needs to be done in future to prevent from having to exceed the salary amount. When receiving the monthly budget at the beginning of the month, the managers have to assume how to use the budget amount given wisely. Given that the employees need materials to get the job done, there are separate budget amounts for specific areas that need to be dispersed accordingly. For example, working at a health care industry in the materials management department, the supplies that are needed for the department need to be available in order for the department to run such as: computers, handheld inventory scanners, and carts...
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...Sales Volume Variance Definition Sales Volume Variance is the measure of change in profit or contribution as a result of the difference between actual and budgeted sales quantity. 1. Formula Sales Volume Variance (where absorption costing is used): = (Actual Unit Sold - Budgeted Unit Sales) x Standard Profit Per Unit Sales Volume Variance (where marginal costing is used): = (Actual Unit Sold - Budgeted Unit Sales) x Standard Contribution Per Unit 2. Explanation Sales Volume Variance quantifies the effect of a change in the level of sales on the profit or contribution over the period. Sales volume variance differs from other volume based variances such as material usage variance and labor efficiency variance in that it calculates not just the variance in sales revenue as a result of the change in activity but it quantifies the overall change in the profit or contribution. The nature of the sales volume variance helps in forming a more meaningful analysis of other variances in the preparation of the operating statement. For example, the material usage variance needs to take into account only the difference between the actual consumption of material and the standard consumption of material for the actual number of units sold since the sales volume variance already takes into account the variation in material cost caused by the difference between budgeted and actual sales volume. Sales volume variance should be calculated using the standard profit per unit in case...
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...Budget Variance Every hospital faces many challenges, but one of the most difficult challenges is knowing how to manage expenses. When a hospital is planning their budget not only do they have to plan a budget that is beneficial for their staff but also high level care for their patients. With so much in society changing such as technology, increase health care cost, and government restrictions it makes planning the budget very challenging. In order to analyze how expenses are being spent compared to the budget that is allotted for them, budget variances have to be made (accountingtools.com, 2013). These variances have to be extremely well detailed in order to make an accurate budget for the following year. Things that should be taken into consideration when doing a budget variance are variance reports, interpreting the results of variance reports and analyzing these reports based on actual performance, and developing a way to better the budget based on these results. The purpose of this paper is to fully analyze all factors that should be considered for a budget variance for a hospital. The very first step for a budget variance is to develop a variance report (accountingtool.com, 2013). There are various factors that should be analyzed to produce a proper variance report such as how many beds are available, how many patients are seen daily, how much staff is available or working in a specific day, how many supplies will be used, and how much utilities such as electricity...
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...Introduction The objective of the Learning Team D, Mauricio Cruz, Nichole Guerra, Srinivas Sangani, and Sterling Mason is to discuss and write a paper on how budgeting and variance analysis helps managers to make decisions. Budgeting and Variance Analysis The major responsibility of a manager is to plan for future. An organization to be successful, it has to make short-term and long-term plans. These plans sets the organizations objectives and ways to accomplish the goals of the organization. A budget is a formal written plan at an organizational level for the outgoing expenses and incoming revenues for a specific period. The purpose of the budget is to ensure that the funds are available to accomplish the objectives of the organization according to plan, justify the use of funds, and help plan future funding accurately. Budgeting plays a great deal in the helping with management decisions. Knowing and understanding the budget can help ease the decision making. For example, in the retail industry every store has a certain budget that strive to meet. Budgets are created from previous year’s sales and can be adjusted for various reasons. The budget numbers allocate a specific amount of labor. When these budgets are not being met, management is required to cut back on labor. Understanding how to read and forecast budgets can help the decision making process easier. Running sales to labor every day helps the management staff in understanding and budgeting correctly. For any...
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