Hi Yandra – I had a really great cost accounting professor in college. Here are some notes that I've shared with others along the way.
Direct Materials and Direct Labor Variances:
– Price = (AQ purchased x AP) – (AQ purchased x SP)
– Usage = (AQ used x SP) – (SQ allowed x SP)
– Rate = (AH x AR) – (AH x SR)
– Efficiency = (AH x SR) – (SH allowed x SR)
Where A = Actual; Q = Quantity; P = Price; S = Standard; H = Hours
The trick to remembering the above variances, is that the Price and Rate variances are pretty much the same thing, (actual x actual) – (actual x standard), and the Usage and Efficiency are also pretty much the same thing, (actual x standard) – (standards x standard). Use the nmeumonic PURE to remember what order they go in. Also, don't forget the “purchased” part of AQ purchased, as they tend to throw in all sorts of quantities to throw you off. Same thing with “used” and “allowed”. Very important that you remember these parts as they tend to give much more information than you need.
Spending, efficiency and volume variances:
– Spending = AOH – (ADLH x SVOH rate per DLH)
– Efficiency = (ADLH x SVOH rate per DLH) – (SDLH allowed x SVOH rate per DLH)
– Volume = (SDLH allowed x SVOH rate per DLH) – (SDLH allowed x S Total OH rate)
Where AOH = Actual overhead (this will be given to you); ADLH = Actual Direct Labor Hours; SVOH = Standard Variable Overhead Rate
The real trick to variances is memorizing formulas. Another great thing to do is to write down all of the formulas on your scratch paper before you even begin the exam. That way, when the questions come up, you can just refer to the formulas you already wrote down, rather than trying to remember them on the spot.
Hope this helps – good luck!!
REG - 83(6/09); FAR - 91(8/09); BEC - 83(11/09); AUD - 1/18/10
.