A Monthly Budget Variance Report

1
A Monthly Budget Variance Report

• For Variance Reports
• A Positive value Favorable (increases Net
  Income)
• A Negative value Unfavorable (decreases Net
  Income)

2
Variance Analysis

• There are two sources of Variance between BUDGETS
  and ACTUALS.
• Spending differences
• Variance due to the COST paid for resources
  (price or rate)
• AQ (AP SP)
• Volume differences
• Variance in the QUANTITY used (volume or level of
  activity)
• SP (AQ SQ)

3
The Variance Format
ACTUAL QUANTITY AT STANDARD PRICE AQ x SP
ACTUAL QUANTITY AT ACTUAL PRICE (ACTUALS) AQ x A P
STANDARD QUANTITY AT STANDARD PRICE SQ x S P
1
2
3
1 2 PRICE VARIANCE AQ(AP-SP)
2 3 QUANTITY VARIANCE SP(AQ-SQ)
TOTAL VARIANCE (1 - 2) (2 - 3)

• Negative Variances are Favorable (a credit to
  Overhead Variance)
• Positive Variances are Unfavorable (a debit to
  Overhead Variance)

• AQ Actual Quantity or Actual Volume or Actual
  Hours
• AP Actual Price or Actual Rate
• SQ Standard Quantity or Standard Volume or
  Standard Hours
• AP Actual Price or Actual Rate

4
Where is the information found?
(1) Actual given on monthly Variance
Analysis report (3) Budgeted given on
monthly Variance Analysis report (2) Calculated
by getting AQ and SP from Accounting or other
source of budget information
AQ x AP
AQ x SP
SQ x SP
ACTUAL COSTS (PROVIDED BY ACCOUNTING)
ACTUAL AMOUNT OF RESOURCE AT STANDARD PRICE
(CALCULATED)
BUDGETED COSTS (PROVIDED BY ACCOUNTING)
1
2
3
1 - 2 SPENDING VARIANCE
2 - 3 VOLUME VARIANCE
TOTAL VARIANCE (1 - 2) (2 - 3)
5
Graphical Analysis
OH
Spending Variance due to Price (rate)
Volume Variance due to activity (quantity)
Expected _at_ Actual volume
2
Actual
1
Budgeted
3
Budgeted Resource ( per unit resource)
Activity Level
Budgeted Volume
Actual Volume
6
Full-absorption Overhead Variance Analysis
Variance due to Price (rate)
OH
Variance due to Volume (quantity)
Actual Applied OH
1
ALLOCATED OVERHEAD
Volume-adjusted OH
2
BUDGETED OVERHEAD Ymx b
Budgeted OH
3
Activity Level
Budgeted Volume
Actual Volume
7
Overhead Variances under Full-absorption Costing

• Variation for
• Y mx b
• Where Y applied overhead
• m Variable Overhead rate (budgeted)
• x actual quantity of overhead vehicle (i.e.
  hours)
• b Fixed Overhead expenses (budgeted)

2
ACTUAL QUANTITY AT ACTUAL PRICE (ACTUALS) AQ x A P
ACTUAL QUANTITY AT STANDARD PRICE Y mx b
STANDARD QUANTITY AT STANDARD PRICE SQ x S P
1
2
3
1 2 PRICE VARIANCE AQ(AP-SP)
2 3 QUANTITY VARIANCE SP(AQ-SQ)
TOTAL VARIANCE (1 - 2) (2 - 3)