Manufacturing Input Variances CMA Part 1 Two-Way, Three-Way and Four-Way Analysis What we have covered above is the analysis of overheads (fixed and variable) in the four-way method. There are four variances and each is calculated separately. There are also three-way and two-way methods of analyzing overheads, which we do by simply combining some of the four-way analysis variances that we calculated. In Three-way Analysis, the three variances are the volume, efficiency and spending variances. 1) The volume variance is equal to the volume variance as calculated for fixed overhead. 2) The efficiency variance is equal to the variable overhead efficiency variance. 3) The spending variance is equal to the variable overhead spending variance plus the fixed overhead spending (budget) variance. Two-way Analysis uses the same information as calculated for four-way analysis, but we are going to combine it in a slightly different manner. The two variances are called the volume variance and the controllable (or budget) variance. 1) The volume variance is equal to the volume variance for fixed overhead. 2) The controllable variance is equal to the sum of the remaining three variances, which are variable spending variance, variable efficiency variance and fixed spending (budget) variance. The following table illustrates the way the four variances are combined for three-way and two-way analysis. Variable Overhead Variance Analysis Fixed Overhead Variance Analysis Efficiency Spending Spending (Budget) Variance Variance Variance (AQ - SQ) x SP (AP - SP) x AQ Actual - Budgeted Efficiency Variance Spending Variance Controllable Variance Production Volume Variance Budgeted - Applied Volume Variance Volume Variance Question 64: Which of these variances is least significant for cost control? a) Labor price variance. b) Materials quantity variance. c) Fixed OjH volume variance. d) Variable OjH spending variance. (CMA Adapted)
Posted on: Sun, 16 Mar 2014 08:26:03 +0000
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