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Price and Quality Aspect of Variance
At this point it is serious to understand that all variance has two aspects, a price aspect and a quantity aspect: these two aspects combine to produce a cost variance. It is demonstrated below as:
Cost element
Price variance
Quantity Variance
Direct Labour
Rate
Efficiency
Direct Materials
Price
Usage
Variable Overheads
Expenditure
Fixed Overheads
volume
As an example:
Direct labour cost variance = Direct labour Rate Variance + Direct Labour Efficiency Variance
Also, Direct Material cost variance = Direct Material Price variance + Direct Labour usage variance
Note that the operating profit variance it follows is then the sum of all the cost labour, variable overheads, material, fixed overheads variances and sales variances. Keep in mind that the operating profit variance is simply the difference between the actual and budgeted profit. After that you need to note that budgeted figures do not form part of the double entry system, and hence the budgeted profit variance does not enter the ledger accounts. The other purpose why the operating profit variance is not entered in the ledgers is such it is a resultant figure that is a sum of all the other variances.
Please complete the following 7 exercises below in either Excel or a word document (but must be single document). You must show your work where appropriate (leaving the calculation
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