Basic variance calculations - FMA/F5

Many would have remembered the formula, but in actual case only fixed overhead variances require a bit of remembering, the rest follows the same approach, which is standard vs actual = variance. Material, labour, variable overhead variances and sales variances use this approach, for example material price variance = (standard price x actual units) - actual cost or (standard price - actual price) x actual units, depending on what information is given. Standard price x actual units is equal to standard cost. As you can see, our aim is to compare the standards set with the actual result obtained. Actual result is always given, you must be careful about the standard. The name of the variance is important to identify what information is needed.

Another example, variable overhead efficiency variance = (standard cost/hour x actual unit - actual variable overhead) x standard cost/hour. Efficiency implies speed, so hours are relevant. Standard cost/hour x actual unit is equal to standard variable overhead. Now you can see that these formula are derived from the logic of standard vs actual, by using the correct information to identify the standard, you will calculate the correct variance.

Fixed overhead variances
This will be more troublesome and need few memory works.
Fixed overhead expenditure variance (easiest) = budgeted fixed overhead - actual fixed overhead. This only involves budget (not adjusted to actual activity level) compared to actual.
Fixed overhead volume variance (the word "volume" implies units) = (actual units - budgeted units) x standard fixed overhead per unit.
Fixed overhead capacity variance (the word "capacity" implies ability to work longer) = (actual hours - budgeted hours) x standard fixed overhead per hour. (If actual hours worked are longer, then it will be favourable variance)
Fixed overhead efficiency variance = (standard hours - actual hours) x standard fixed overhead per hour.
As you can see, the names of the variance help you to identify what information is needed, be careful of the standard fixed OAR used for volume, capacity and efficiency variances. Fixed overhead total variance is the mixed of the above and it is actually over/under-absorption of fixed overhead.

Labour idle time variance
When idle time occurs, idle time variance = idle time x standard cost/hour. This is always adverse unless company has budgeted a idle time which is higher than actual idle time.
The problem is what labour hours to use to calculate rate variance and efficiency variance? With understanding, actual hours paid are used in rate variance and actual hours worked are used in efficiency variance.

Identifying favourable or adverse variance
This is a common sense work, when your standard (expected result) is better than actual result, adverse variance occurs. Nothing to remember.

Variances analysis is a significant and big area, but it is very simple to calculate the variances once you practised enough questions and understand the logic. You may have different ways to calculate, use the way that you are most comfortable with. The key skill to learn should be the interpretation of variances (mainly for F5).