Variable Analysis
Introduction
The variance analysis for the Brightlite line of products will be used to promote management action at the earliest possible stages. This analysis will process the examining in detail each variance between actual and standard costs. The results will determine the reasons why budgeted results were not met. The types or variances computed depend on the responsibility centers and the level of management for which the review is performed. Since the objective is to determine the degree of corrective action needed, the variances computed must relate to key performance indicators considered critical to the success of the responsibility center. The primary objective of cost variance analysis is to permit organizational managers to detect and correct inefficiencies wherever they exist in operations involving expenditures. Decisions are generally necessary as to what kinds of variances to compute whether or not to investigate and whether or not to investigate a particular variance once computed.
Variances
The variances for the Brightlite line of lighting products are as follows:
a) Price variance for raw materials purchased
= (standard price - actual price) * actual qty purchased
= (6.8-7.1)*11,400
= (3,420) U
b) Raw materials usage variance
= (standard usage - actual usage) * standard price
= ((1,900*5)-9,260)*6.8
= 1,632 F
c) D ...