N12405 MAD II Seminar 1 Part 2 Standard costing and variance analysis

1

Indicative answers

1. D

2. B

3. B

4. Fixed O/h expenditure variance = 10000 9010 = 990F Fixed O/h volume variance = (10000/10000 units*12000) 10000 = 2000F

The fixed overhead volume variance arises because actual output is in excess of budget. This

variance is not particularly useful given the nature of fixed costs. However, a further analysis of

capacity usage and the resulting financial implication might trigger management to reconsider

the capacity utilization. The fixed overhead expenditure variance indicates a lower spending of

990 when compared to the amount planned. The magnitude of the variance might not suggest

investigation. However, if the variance persists over a period of time, it might worth reviewing

and updating the budget.

5. B

6. D

7. C

8. C

9. Students are required to explain that planning variance compares the ex-post standard with ex-

ante standard, whereas operational variance compares the ex-post standard with the actual

result. Answer should also explain that planning variances reports differences due to a mistake

at the planning stage or any unforeseen circumstances at the time of planning, making it useful

feedback information for future planning. Operational variances report the differences in

operational activities with respect to expenditures and efficiency, and are useful feedback for

management of these activities.