Planning & Operational Variance Examples

CIMA -Managerial Paper P1 (Mgt Accounting - Performance Evaluation) - Pg 236 Planning Variance: or revision variance - campares an original standard with a revised standard that would have been used if the planner had known what was going to happen

Operational Variance: or Operating variance - compares an actual results with revised standard

Example 6.2: At the beginning of 20x0, WB set a standard marginal cost for its major product of $25 per unit. The standard cost is recalculated once a year. Actual production cost during August 20x0 were 304000, and actual units 8,000 produced With the benefit of hindsight, the management of WB realized that realistic standard cost for current conditions would be $40 per unit. The planned Standard cost of $25 is unrealistically low. Required: Calculate the total planning and operational variance Planning Variance: Standard Cost Revised Standard

Operational variance: Revised Standard Actual Cost

(8,000 x $ 25) (8,000 x $ 40) Planning Variance

200,000 320,000

(8,000 x $ 40)

320,000 304,000

120,000

Operational Variance Total Variance Tradtional Variance: Standard Cost Actual Cost

(8,000 x $ 25)

16,000 104,000

200,000 304,000 104,000

- Pg 236

what was going

UF

Fav UF

UF