CMA Study Group

  • 1.  CMA Part 1 COST VARIANCE

    Posted 06-11-2013 04:35 AM
    I am studying for CMA Part 1 the exam date is 26/06/13. I have studied thru HOCK material and was going thru GLEIM and found that in HOCK the price variance is (AP - SP ) x AQ and in gleim it is ( SP - AP ) x AQ. for all the variances actual is subtracted from standard this will give a different answer for favorable and unfavorable. Which one is correct. Also can anybody help on how can i use the screen for essay questions. Appreciate your valuable answers.

    Regards
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    Pallavi Shirke
    Accountant
    Abu Dhabi
    United Arab Emirates
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  • 2.  RE:CMA Part 1 COST VARIANCE

    Posted 06-11-2013 05:26 AM

    Both are correct. we usually take an absolute value of the result of variance. Whether it's favorable or unfavorable depends on the nature of the subject of variance. Sometime, a negative figure may be good, but sometimes bad. 

    Referring to product cost, decrease in costs is favorable; if actual cost (AP) is lower than standard cost (SP), but if actual is placed in front of SP, it would be a negative figure but a favorable variance comes up. In the contrary, referring to sales volume, an actual higher sales volume of course prefers to a standard lower one. Both increase in volume and price for earned revenue is good; whereas they are bad for used costs. 

    Thus, w    e should compare the actual with the standard of the measure in the context, and then understand what we are looking at, instead of its' negative or positive value. We should also have a consistent presentation on individual variance computed otherwise the end result of profit variance would be distorted.  Instead, we'd better use the U and F as annotations for unfavorable and favorable variance respectively.

    Regards,


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    Kam Sing LEUNG CFP, CPA, FCCA
    Controller
    Total Solution Consultancy (Hangzhou) Limited
    Hangzhou
    China
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    Original Message


  • 3.  RE:CMA Part 1 COST VARIANCE

    Posted 06-11-2013 05:41 AM
    Hello Pallavi,

    How do you want your favorable variance to appear? Positive or negative value?

    I have always followed a basic technique in remembering the formula for (material) variance analysis, using the alphabet. "A" (for Actual) is ahead of "S" (for Standard). So, I follow the formula AP-SP and accept that a negative value means it is a "favorable" variance.

    If my actual price is higher compared to standard price, it is "detrimental" to the business, isn't it? It is unfavorable when your A > S.

    Consuming more (actual) quantities of raw materials compared to standard quantities allowed to produce finished goods means my materials cost is more than what it should have been compared to my budget.

    I hope this helps.


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    Angel Secerio CMA, CPA
    Director/Manager
    Insights Financial Review Services Inc
    Makati City
    Philippines
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    Original Message