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Maliatko
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Joined: 27 Aug 2009
Location: United States
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| Posted: 16 Nov 2009 at 16:27 | IP Logged
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My instructor taught us this trick about "Spit into Aquarium"...
Basically, for both Direct Materials and Direct Labor, there are two types of variance: Price and Quantity. Price is also referred to as "Rate" ('price' for direct labor hour), and Quantity is also referred to as "Usage" (think of how much materials or direct labor hours were 'used').
SP - standard price
AP - actual price
SQ - standard quantity
AQ - actual quantity
A table for these variances is as follows:
Price (Rate) Quantity (Usage)
Direct Materials (SP-AP)*AQ (SQ-AQ)*SP
Direct Labor (SP-AP)*AQ (SQ-AQ)*SP
As you see, the formulas are the same for both DM and DL.
Now, here's the trick. If you look at the table from the RIGHT to the LEFT, imagine that SP in Qunatity/Usage variance stands for "SPit", and AQ in the Price/Rate variance stands for "AQuarium". So, imagine you are standing on the right hand side, and you have to SPit into AQuarium.
I memorized the terms (SP-AP) for price variance because both SP and AP refer to Price variance, and (SQ-AQ) because both SQ and AQ refer to Quantity variance.
Also, memorize them in the format of (Standard-Actual) because the sign of the difference will tell you whether the variance is Favorable or Unfavorable. Variance is favorable when (S-A)>0 because you've used/paid less than was budgeted, and variance is Unfavorable when (S-A)<0 because you've used/paid more than was budgeted.
I hope this helps. Good luck! :)
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CTCPA
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| Posted: 16 Nov 2009 at 16:30 | IP Logged
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Thank you so much.. I will go home and try to absorb this all.. Thanks Again!
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Far 11/08 83
Reg 02/09 93
Aud 07/09 76
Bec 11/09 84
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sonykiss
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Joined: 19 Mar 2009
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| Posted: 16 Nov 2009 at 17:02 | IP Logged
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Thanks, do you have any tool for BEP, I think that is harder than Variances. Thanks.
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sonykiss
"Perseverance is the Doorway that Leads to Success."
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Maliatko
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| Posted: 16 Nov 2009 at 17:07 | IP Logged
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not sure what BEP is... :(
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FARB-FinAudRegB
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Joined: 25 Apr 2009
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| Posted: 16 Nov 2009 at 18:22 | IP Logged
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BEP is "BreakEven Point," which is for cost/managerial accounting and in BEC. That is not to be confused with BEPS, or "Basic Earnings Per Share," which belongs in FAR. :-s
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CPA Exam: Won Series 4-1
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Topic: BEC: Cost Accounting Help
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