11.2 Calculating variances

• The expected price per unit of a resource is called the standard price
• What is a variance in standard costing?

  Difference between actual and standard cost
• Match the variance category with its definition:

  Material Variance ↔️ Difference between actual and standard material cost

  Labor Variance ↔️ Difference between actual and standard labor cost

  Overhead Variance ↔️ Difference between actual and standard overhead costs
• What is the primary purpose of variance analysis?

  Improve cost control
• The material cost variance is calculated as (Actual Quantity × Actual Price) - (Standard Quantity × Standard Price
• A favorable labor cost variance indicates the actual labor cost was lower than expected.


  True
• What is the standard price in standard costing?

  The expected price per unit
• A standard cost is a predetermined cost expected for a unit of product or service.


  True
• Standard costs are only used for financial reporting and not for variance analysis.

  False
• Order the three main categories of variances:

  1️⃣ Material Variance

  2️⃣ Labor Variance

  3️⃣ Overhead Variance
• Analyzing variances helps businesses pinpoint areas needing improvement.

  True
• Order the components and formula for calculating the material cost variance:

  1️⃣ Actual Cost = Actual Quantity × Actual Price

  2️⃣ Standard Cost = Standard Quantity × Standard Price

  3️⃣ Material Cost Variance = Actual Cost - Standard Cost
• The labor cost variance compares the actual hours worked at the actual rate with the standard hours at the standard rate
• The overhead variance is the difference between the actual overhead costs incurred and the standard overhead costs expected
• The overhead variance helps in determining how overhead expenses should be allocated across departments.


  True
• Match the variance type with its interpretation:

  Favorable Material Variance ↔️ Actual material cost was lower than expected

  Unfavorable Labor Variance ↔️ Higher actual labor costs than standard

  Favorable Overhead Variance ↔️ Lower actual overhead costs than planned
• What is a standard cost?

  A predetermined expected cost
• Standard costs are crucial for variance analysis.


  True
• The material variance is calculated by comparing the actual and standard material costs
• Order the steps to calculate a labor cost variance:

  1️⃣ Calculate the actual labor cost (Actual Hours × Actual Rate)

  2️⃣ Calculate the standard labor cost (Standard Hours × Standard Rate)

  3️⃣ Calculate the labor cost variance (Actual Labor Cost - Standard Labor Cost)
• Variances help management identify areas where actual costs differ from planned amounts.


  True
• How is the actual labor cost calculated?

  Actual Hours × Actual Rate
• The expected quantity of a resource required per unit of output is called the standard quantity
• Variance analysis compares actual costs to the predetermined standard costs
• Match the component of a standard cost with its description:

  Standard price ↔️ The expected price per unit of a resource

  Standard quantity ↔️ The expected quantity of a resource required

  Standard efficiency ↔️ The expected level of efficiency in using the resource
• A variance is the difference between the actual cost incurred and the standard cost expected
• Match the variance category with its definition:

  Material Variance ↔️ Difference between actual and standard material cost

  Labor Variance ↔️ Difference between actual and standard labor cost

  Overhead Variance ↔️ Difference between actual and standard overhead costs
• The material cost variance is the difference between the actual cost incurred and the standard cost expected
• A favorable material cost variance always indicates lower material prices.

  False
• Order the components and formula for calculating the labor cost variance:

  1️⃣ Actual Labor Cost = Actual Hours × Actual Rate

  2️⃣ Standard Labor Cost = Standard Hours × Standard Rate

  3️⃣ Labor Cost Variance = Actual Labor Cost - Standard Labor Cost
• Order the components and formula for calculating the overhead variance:

  1️⃣ Actual Overhead Costs = Total overhead costs actually incurred

  2️⃣ Standard Overhead Costs = Predetermined standard overhead costs

  3️⃣ Overhead Variance = Actual Overhead Costs - Standard Overhead Costs
• After calculating variances, the next step is to analyze and interpret
• Analyzing variances helps businesses identify areas for improvement and enhance overall performance.


  True