[Anonymous]

Thank you in advance for shedding some light on this topic.

I am currently studying with Roger and use the CPA test bank for additional MC questions. In the later part of Jan I will be taking hopefully my final exam in BEC. My last BEC test was a 72% and felt weak on the Cost Accounting portion.

I generally understand variance analysis when it comes to DM and DL, O/H is where I struggle.
* STD allowed for actual can be somewhat tricky but getting better

Roger has taught to use the following:

DM Price Variance = AQ (SP-AP) (purchasing)
DM Usage Variance = SP (SQ*-AQ) (Production)
DL Price Variance = AH (SR-AR) (Personnel)
DL Efficiency Variance = SR (SH*-AH) (Production)

Where I have a problem is the Spending, Efficiency and Volume Calculation (Especially Efficiency calculation) Also I don’t recall encountering a Volume questions in any of the MC?
Roger has taught to use a chart similar to other charts I have seen on the this site for O/H variances. I get the chart but don’t know how to exactly use it to answer questions.

Actual FBE@Actual FBE&@STD APPLIED

Spending Efficiency Volume

Is spending the same as the DM/DL Price formula as above? Is there connection between the two different types DM/DL and O/H?

I get confused when approaching the O/H question and keep looking for a formula to approach the problem (like the DM/DL shown above) or the fixed variable portion of O/H confuses me. It seems every problem is different and unique to its own and requires a greater understanding than I currently have.

Also are there repeat formulas used in the DM/DL calculations above that are used in the O/H calculations? They seem to be the same or at times exactly the same.

Hope that was not too confusing and please ask if you have questions.

Thank you!

-Dookla

[Anonymous]

I can't remember the formulas but just think of it like this-when comparing actual quantity at actual price to actual quantity at standard prices-that's price variance. When comparing actual quantity at standard price to quantity allowed, it's an efficiency variance. So for efficiency variance-you have to first think-for the amount actually produced-how much material would they have to use (at standard prices) and then compare to how much material they actually used, at standard prices-that's your efficiency variance.

I could never follow any tricks for these, just had to understand and visualize it almost. It works for me.

[Anonymous]

Thank you for the reply anyatver. The way you see it is the way I am also seeing the O/H variances, in that you just have to kind of “know how” to do them correctly as they come up. The reason I asked is I have seen all these diagrams and quasi formulas which I have not been able to comprehend thus far. I studied Finance so Cost Accounting is entirely new for me.
Thanks again!

[Anonymous]

Does anyone else have suggestions on how to apply a table or formulas to solve OH problems?

[aaronmo]

OK…I had issues with this too…especially for FOH. I KNOW we used a method in my cost class that it made it easy and ibntuitive…and it involved 5 columns…one for Budget. One budget adjusted for volume, and one actual results. The other two columns tracked variance between the columns, but the FOH stuff was a bit different.

I wasn't able to follow the tabular method Becker used at all. The formulas…I could get 100% of DL and DM questions, about 75% of VOH and maybe half of FOH right.

The main challenge for me with OH and variance was remembering what to use as budgeted amounts vs. volume adjusted.

Post a question you're having a hard time with and I'll try and walk you through it.

[Anonymous]

Hi Aaronmo,
Here is a question I am struggling with… Im not sure if this is a SEV question or a standard costing question? I am not sure what a flexible budget variance is? Thank you for your help.

Quick Co. was analyzing variances for one of its operations. The initial budget forecast production of 20,000 units during the year with a variable manufacturing overhead rate of $10 per unit. Quick produced 19,000 units during the year. Actual variable manufacturing costs were $210,000. What amount would be Quick’s flexible budget variance for the year?

Answer:
$10,000 favorable.

$20,000 favorable.

$10,000 unfavorable.

$20,000 unfavorable. CORRECT
This answer is correct because the variance is equal to budgeted cost at actual level of production, $190,000 (19,000 × $10) minus actual costs ($210,000). Therefore, the budget variance is $20,000 unfavorable ($190,000 – $210,000).

[NeedsA75]

Just use the formula format. I'm glad I got through this section already because some of those questions were beasts…but I remember the questions on the exam being watered down compared to what I saw in the study material

[aaronmo]

Hi Dookla…this one is pretty easy/basic to be honest…

So it's asking you for a variance…or a difference…between what was expected and what we got. It's asking for the total VOH variance, making it much simpler…

They tell you in the problem that we produced 19,000, and the problem tells us we will have allocated $10 per unit of variable overhead…

So, we allocated $190,000 into variable overhead.

Actual results were 210,000 of variable overhead cost…which is more than we budgeted for, so we can immediately eliminate any favorable answer.

210,000 (actual VOH cosat) – 190,000 allocated VOH costs = 20,000 (unfavorable)

[Anonymous]

Hi NeedsA75, what is the formula? Can you elaborate on that please?

Hi, aaronmo the problem does seem much simpler when you explain it like that. I am just having problem identifying the problem and categorizing it correctly. I keep trying to fit into the cookie cutter solutions I already know.

I started the problem by doing 10 x 19,000 = 190,000 vs 10 x 20,000 = 200,000 getting a variance of 10K.

After doing some book reading does this problem fit the description of the One Variance Method which is Net O/H Variance?

[NeedsA75]

Dookla, you typed the formulas in your original post. Know those and how to apply them. Don't worry about the “tabular format” is all I was saying..

[martimann]

I think I was also a bit puzzled on some of those variances. I was doing becker and a friend gave me the Rogers book. I ended using the method shown in this video by Miles CPA. I used his diagram type method and they worked for me every time. It's been a while though since I took BEC.
Here's the link:
https://m.youtube.com/watch?v=7oAM1A8nCHY

[aaronmo]

Know the formulas, but you also need to understand what the question is asking…the CPA exams often ask questions with a twist to filter people who only know formulas vs. people who understand how the concept works. This particular question isn't really a formula question, it's a very basic, easy question testing what variance is. The formulas come into play in solving what KIND of variance it is…pricing, efficiency, etc.

[aaronmo]

I don't mean this to be insulting…but this is about the easiest kind of variance question there is…if you need help with this one, I think you need to really focus on the concept.

Variance is a way of measuring, allocating and analyzing the difference between results and expectations. There are different kinds of variance…

Variance caused by price…variance caused by different volumes than expected…variance caused by using more, or less, material/labor/whatever than expected…

The formulas simplify the modeling in some cases, but you still need to work out what the question is testing, and the CPA variance questions I got were specifically designed to test concept.

[Anonymous]

Martimann,
The MILES CPA video you posted has been a huge help! It has helped to gel together a lot of the concepts and overall understanding of Standard Costing and Variance Analysis.

Thank you!

[martimann]

Hey @Dookla,
I'm glad it helped.
I remember I was good with all of them except for two that kept giving me trouble. His method helped me to figure them out.
Good luck.

[Author]

Replies