20 Jun Reserve for DavidSmart
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Template 17
Computing Variances
See Chapter 17 for a discussion of this topic.
Price Variance 0.00
Quantity Variance 0.00
Volume Variance 0.00
Total Variance 0.00
To determine the values for the above variances for any line item in your budget
replace the xxx’s below with the actual values for your firm.
Budgeted Price per Unit of Resource xxx
Actual Price per Unit of Resource xxx
Budgeted Volume of Units xxx
Actual Volume of Units xxx
Budgeted Quantity of Input Resource xxx
Actual Quantity of Input Resource xxx
For example, suppose that you expect to produce 1,000 widgets, but actually
produce 1,200. You thought you would pay your factory workers an average of $9 per
hour, but actually paid them an average of $9.40 per hour. You thought that you
would have to pay for 1.12 hours of factory worker time per widget, and actually had to pay for
1 hour of factory worker time. All told, your budget for factory workers to make
widgets was $10,080, but you actually spent $11,280.
Price Variance 480.00
Quantity Variance -1,296.00
Volume Variance 2,016.00
Total Variance 1,200.00
To determine the values for the above variances for any line item in your budget
the following values have been inserted where the xxx’s are shown above.
Budgeted Price per Unit of Resource $9.00
Actual Price per Unit of Resource $9.40
Budgeted Volume of Units 1000
Actual Volume of Units 1200
Budgeted Quantity of Input Resource 1.12
Actual Quantity of Input Resource 1
The price variance indicates that of the total $1,200 varaince, $480 was the result of
the higher than expected hourly wage rate. The Quantity variance indicates that we
actually used less labor per widget produced than expected, resulting in spending $1,296
less than we would have expected. The volume variance shows that we spent $2,016 more
than expected because of the higher than expected volume of widgets produced.
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