Page 137 - BA2 Integrated Workbook STUDENT 2018

Standard costing and variance analysis

Check the actual contribution is correct:
$
Sales revenue 1,350,000
Direct material 146,250
Direct labour 845,000
Variable overheads 248,200
––––––––
Actual contribution 110,550
––––––––

In some questions you could be asked to reconcile budgeted profit to actual profit.

Budgeted profit + budgeted fixed overhead = budgeted contribution.

Actual contribution – actual fixed overhead = actual profit

3.2 Interpreting variances

It is important to be able to interpret variances and to try to understand what could
have caused them.

Consider our variances for XYZ:

Variance Amount Reason

Direct material price $11,250 F  Standard price set too high

 Lower quality material used

 Unexpected discounts available

Direct material usage $10,500 A  Standard usage set too low

 Lower quality material used

 Less skilled workers

 Theft

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