BTW, for anyone having trouble with Variances, or just looking for a sure fire way to approach variance problems, I found this on the CPA Excel Forum when I first took BEC and I remember it helping a lot. I am just getting into Variances again so I figured I would post this to see if it helps anyone else.
I find that the following format works particularly well for CPA exam questions – particularly those which provide you with the variance and ask you to solve for the actual/standard quantity or cost.
Here's an example of using this format to solve one of your past exam questions (and one of the most difficult ones, to boot!):
AICPA.060214BEC
Virgil Corp. uses a standard cost system. In May, Virgil purchased and used 17,500 pounds of materials at a cost of $70,000. The materials usage variance was $2,500 unfavorable, and the standard materials allowed for May production was 17,000 pounds. What was the materials price variance for May?
Step 1: Fill in blank format with information supplied in question:
____________Qty/Hrs_______Price/Rate_______Total
+ Standard______17,000_____X____???_______=______???
– Actual ________17,500_____X____???_______=_____$70,000
= Difference_______???___________???______________???
Usage/Efficiency Variance = Difference in Qty/Hrs X Standard Price/Rate
($2,500) = ??? X ???
Price/Rate Variance = Difference in Price/Rate X Actual Qty/Hrs
___???__=__??? X ???
Step 2: Wherever you have 2 out of the 3 numbers in an equation, calculate the missing value:
____________Qty/Hrs_______Price/Rate_______Total
+ Standard______17,000_____X____???_______=______???
– Actual ________17,500_____X___$4.00_______=_____$70,000
= Difference_______(500)_________???______________???
Usage/Efficiency Variance = Difference in Qty/Hrs X Standard Price/Rate
($2,500) = ??? X ???
Price/Rate Variance = Difference in Price/Rate X Actual Qty/Hrs
___???__=__??? X ???
Step 3: Check to see if any of the newly calculated values can be used to complete other formulas and/or identify other components in the equations:
a)__________Qty/Hrs_______Price/Rate_______Total
+ Standard______17,000_____X____???_______=______???
– Actual ________17,500_____X___$4.00_______=_____$70,000
= Difference_______(500)_________???______________???
Usage/Efficiency Variance = Difference in Qty/Hrs X Standard Price/Rate
($2,500) = (500) X ??? = $5.00==>>Standard Price/Rate
Price/Rate Variance = Difference in Price/Rate X Actual Qty/Hrs
___???__=__??? X ???
b)__________Qty/Hrs_______Price/Rate_______Total
+ Standard______17,000_____X___$5.00______=______$85,000
– Actual ________17,500_____X___$4.00_______=_____$70,000
= Difference_______(500)________ $1.00_____________$15,000
Usage/Efficiency Variance = Difference in Qty/Hrs X Standard Price/Rate
($2,500) = (500) X ??? = $5.00==>>Standard Price/Rate
Price/Rate Variance = Difference in Price/Rate X Actual Qty/Hrs
___???__=__$1.00 * 17,500 = $17,500 Favorable
Step 4 (optional): You can check the accuracy of your calculations by adding the Usage/Efficiency and Price/Rate variances to see if they equal the Total Variance (per the Standard/Actual/Difference matrix):
$2,500 Unfavorable + $17,500 Favorable = $15,000 Favorable Total Variance==>>matches with separately calculated Total Variance
Though this format may seem like overkill for some of the easy variance questions, I find it EXTREMELY helpful for more difficult questions.
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