Question

List, describe and give examples of the value of each of the following types of Variance Analysis, "volume variance," "spending/quantity use variance," "static budget variance" and "flexible budget variance." How have you seen these used? How would you apply any of these to your personal life?

Answer 1

Volume Variance:

Volume Variance means simply the difference between actual sales quantity and budgeted sales quantity. for example a company has budgeted or expected sales quantity for a particular period is 100 units of item but actual quantity sold for that particular period is 80 units of item, so difference between these two 100 units and 80 units is 20 units. so 20 units is volume variance.

Regarding Value of Volume Variance is volume variance multiplied by sales price per uit of item. for example if sale price of above item per unit is ₹10, then value of volume variance is sale price per unit multiplied by volume variance ₹10*20units= ₹200/-.

Spending Variance:

Spending Variance means difference between budgeted and actual value of any type of expenditure for a particular period. for example supose a organisation's budgeted expenditure for a particular period is ₹50000/- and it's Actual expenditure for the same period is ₹60000/-, hence spending variance is ₹10000/- which is unfavourable as it is actual expenditure exceeds budgeted expenditure which adversly affect the profitability of the organisation. if we consider expenditure as direct labour then it is simply labour rate variance (i.e difference between standard labour rate per hour and actual labour rate per hour) multiplied by number of hours spent.

Static Budget Variance:

First of all we should understand wat is static budget, static budget is simply a fixed line budget.this figure ll not change with change in volume of sales for a particular period.

for example supose an organisation has made it's anual budget of marketing expenses is ₹100000/- irrespective of any volume of sales, sales may be 10,000 unit, 15000 units or any number of units. marketing budgeted expenditure is fixed which is knon as static Budget.

static budget variance means difference between actual amount of expenditure incurred and static budgeted expenditure, in this context if actual marketing expenditure incurred is ₹80000/- for the same particular period then static budgeted variance is difference between actual expenditure and static budgeted expenditure i.e ₹100000 - ₹80000= ₹20000/-

Flexible Budget Variance:

Flexible Budget means amount change with change in volume of activity.

example of flexible budget is Supose a company normaly produces 10000 units with fixed expenses of ₹50000 and ₹30000 towards variable expenses (10000 units @₹3) hence total cost is ₹50000+₹30000=₹80000 this is static budget

if company actualy produced 12000 units with fixed exp ₹50000 and variable expenses ₹12000*₹3=₹36000 hence total cost is ₹50000+₹36000=₹86000 , this is Flexible Budget

Supose company actualy spent total expenditure ₹50000+₹33000=₹83000

Hence Flexible Budget Variance is ₹3000 Favourable as actual expenditure is ₹3000 less than Flexible budget

Spending Variance can be considered for personal life