Hey ssham1976, I heard about the expected BEC score release and thought I’d pop in to see how it was going, and I came across your post.

Here’s how I thought through variances that helped me understand them.

Volume variance is always the difference between budgeted fixed costs (on a static budget) and applied fixed costs (using standard unit costs).  You can memorize that formula.

As oldog pointed out, volume variance applies only to fixed costs.

Budgeted = $20,000
Applied = what should have been if unit costs had been as planned ($1), given the actual level of activity ($19,000 units of output produced) = $19,000

Difference = 20,000-19,000 = 1000

This is unfavorable because it indicates that you didn’t produce as much output as planned.  Remember, when you’re dealing with fixed costs, the more output the better, because fixed costs are constant within the relevant range of production, so the more you produce, the lower the unit fixed costs.  Basically in this example, you didn’t get enough bang for the buck.  For the same fixed costs, you produced only 19,000 units instead of the 20,000 budgeted.

You can remember the formulas for the applied number by remember that the main idea of the applied is what the number would have been if unit costs were as planned (i.e., standard), but adjusted for the actual level activity (because it’s a flexible budget).  Remember the basic idea that unit variable costs are constant within the relevant range, while total fixed costs are constant within the relevant range.

Note the Becker PURE and DA DS mnemonics on page B5-65.  I thought they were very useful in memorizing the variance formulas.

Hope this helps, and good luck on your upcoming exam!

oldog new trics for the same example that

ssham1976 gave can you show me what the overhead efficiency variance would be using your chart???

Can somebody please help me with understanding this question;

Virgin Corp uses standard cost system. In May purchased and used 17,500 pounds of materials at cost of $70,000. The materials usage variance was $2,500 unfavorable and the standard materials allowed for May production was 17,000 pounds. What was the materials variance for May?

the answer is 17,500 FAV

Becker gives an explanation, but I don't understand it..