Variance Analysis Several tools are available to managers to assist them in evaluating organizational performance, one of them being variance analysis. Var
Variance Analysis
Several tools are available to managers to assist them in evaluating organizational performance, one of them being variance analysis. Variance analysis compares actual costs and quantities with standard costs and quantities. The results from a variance analysis are important for helping managers control costs (price variances) and identify areas where organizational performance and efficiency can be improved (quantity variances). In this Discussion, you will use an example from your professional career to consider the role of variance analysis in the decision-making processes for an organization.
To prepare for this Discussion:
- Consider the role of variance analysis in decision making and how understanding variances, both favorable and unfavorable, might help contribute to improved organizational efficiency.
- Identify an example from your professional career in which both highly favorable and unfavorable variances occurred.
Post an explanation of the role of variance analysis in managerial decision making, to include the following:
- Describe an example from your professional career in which both highly favorable and unfavorable variances occurred.
- Identify what stakeholders were most affected by these variances.
- Explain how understanding these variances could have helped you as a manager in this situation to make better decisions.
Variance Analysis
Variance analysis helps managers determine if they are successful or not in meeting the goals set for them by upper management. It provides a way to determine possible causes and remedies for unfavorable variances as well as examining favorable variances in an effort to capture those processes in order to use them in the future. Through these resources, you will explore how a variance analysis is used and how to perform one.
· Franklin, M., Graybeal, P., & Cooper, D. (2019). Why it mattersLinks to an external site. . In Principles of accounting, volume 2: Managerial accounting . OpenStax. https://openstax.org/books/principles-managerial-accounting/pages/8-why-it-matters
· Franklin, M., Graybeal, P., & Cooper, D. (2019). 8.1 explain how and why a standard cost is developedLinks to an external site. . In Principles of accounting, volume 2: Managerial accounting . OpenStax. https://openstax.org/books/principles-managerial-accounting/pages/8-1-explain-how-and-why-a-standard-cost-is-developed
· Franklin, M., Graybeal, P., & Cooper, D. (2019). 8.2 compute and evaluate materials variancesLinks to an external site. . In Principles of accounting, volume 2: Managerial accounting . OpenStax. https://openstax.org/books/principles-managerial-accounting/pages/8-2-compute-and-evaluate-materials-variances
· Franklin, M., Graybeal, P., & Cooper, D. (2019). 8.3 compute and evaluate labor variancesLinks to an external site. . In Principles of accounting, volume 2: Managerial accounting . OpenStax. https://openstax.org/books/principles-managerial-accounting/pages/8-3-compute-and-evaluate-labor-variances
· Franklin, M., Graybeal, P., & Cooper, D. (2019). 8.5 describe how companies use variance analysisLinks to an external site. . In Principles of accounting, volume 2: Managerial accounting . OpenStax. https://openstax.org/books/principles-managerial-accounting/pages/8-5-describe-how-companies-use-variance-analysis
· Walden University, LLC. (2024). Standard costs, actual costs, and variances Download Standard costs, actual costs, and variances [PDF]. Walden University Canvas. https://waldenu.instructure.com
· Walden University, LLC. (2024). Variance practice and solution Download Variance practice and solution [PDF]. Walden University Canvas. https://waldenu.instructure.com
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Week 5 Assignment: Accounting Tools and Measures for Decision Making—Part 2
Prepared by: Replace this text with your name.
Date: Replace this text with the submission date.
Walden University
MBAX 6050: Accounting for Management Decision Making
Variance Analysis
Replace this text with introductory information. Add or remove headings as necessary.
[Heading]
Insert your calculations of the price and quantity variances for each material as well as the rate and time variances for direct labor from Excel. Add or remove headings as necessary. For information on inserting data from Excel into Word, refer to the following: Microsoft. (n.d.). Insert a chart from an Excel spreadsheet into Word. https://support.microsoft.com/en-us/office/insert-a-chart-from-an-excel-spreadsheet-into-word-0b4d40a5-3544-4dcd-b28f-ba82a9b9f1e1
[Sub-Heading]
Replace or remove this text. Add or remove headings as necessary.
References
[Please delete this note before submitting your Assignment. For more information about formatting your reference list, please visit the following site: https://academicguides.waldenu.edu/writingcenter/apa/references .]
Include appropriately formatted references to support your Assignment. Refer to the Assignment guidelines for further information on the requirements.
Page 5 of 15
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Part 2 Variance Analysis
| Week 5 Variance Template | |||||
| a) Price variance = (actual price – standard price) times quantity bought | |||||
| Actual price | Standard price | Quantity bought | Price variance | Favorable or Unfavorable | |
| Plastic tubing | |||||
| Fabric | |||||
| Padding | |||||
| b) Wage rate variance = (Actual wage rate – standard wage rate) times actual hours | |||||
| Actual wage rate | Standard wage rate | Actual hours | Wage rate variance | Favorable or Unfavorable | |
| Direct labor | |||||
| c)Total price variance | 0 | 0 | 0 | 0 | |
| d) Quantity variance = | |||||
| (actual quantity used in production – standard quantity used in production) times the standard price | |||||
| Actual Quantity | Standard Quantity | Standard Price | Quantity variance | Favorable or Unfavorable | |
| Plastic tubing | |||||
| Fabric | |||||
| Padding | |||||
| e) Labor efficiency variance = (actual hours – standard hours) times standard wage | |||||
| Actual hours | Standard hours | Standard wage | Efficiency variance | Favorable or Unfavorable | |
| Direct labor | |||||
| f) Total quantity variance | 0 | ||||
| TOTAL VARIANCES | |||||
| Plastic tubing | – 0 | ||||
| Fabric | – 0 | ||||
| Padding | – 0 | ||||
| Direct labor | – 0 | ||||
| TOTAL | – 0 | ||||
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