Accounting for Managers: Interpreting accounting information for decision-making

456 ACCOUNTING FOR MANAGERS

Table A3.12 Variance analysis

Materials price variance £20

Actual no. units 910

Adverse variance 18,200

Materials usage variance 90

Standard cost £250

Favourable variance 22,500

Favourable materials variance 4,300

Labour rate variance £5

Actual no. units 1,050

Favourable variance 5,250

Labour usage variance 50

Standard cost £150

Adverse variance 7,500

Adverse labour variance −2,250

Overhead rate variance £2

Actual no. units 1,050

Adverse variance 2,100

Overhead usage variance 50

Standard cost £70

Adverse variance 3,500

Adverse overhead variance −5,600

Total adverse manufacturing expense variance −3,550

Favourable selling and admin variance 6,500

Variance based on actual production volume 2,950

The above report showed that by adjusting the budget to the actual volume of
production/sales, the profit was £2,950 higher than expected. The finance director
also produced a variance analysis (Table A3.12).
This showed that the gross margin was lower than expected for the 1,000 units
actually produced by £3,550, but that selling and administration expenses were
below budget by £6,500. Therefore, profits were higher than expected for the 1,000
units actually produced.
On receipt of the finance director’s report, comments were sought from the
operational executives.
This question particularly relates to an understanding of Chapter 15.