BEC – 3 way variance

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  • #187125
    Tux
    Member

    I’m really confused on 3 way variance.

    I’m using Becker. (Ch. 2 – Budgeting)

    What’s the difference between efficiency and volume? I thought they both relate to quantity?

    What’s the difference between standard hours and budget hours? I thought they both relate to budget.

    Lastly, when addressing questions on variances, once you understand the terminology and the formulas, are all the variances figured out the same way – whether dealing with materials, labor or overhead?

    I believe they are approached the same way, correct? Just apply the same steps to the problem, regardless of what it’s asking for?

    THANKS!!

    FAR - 86 - 2/27/14
    AUD - 75 - 5/29/14
    BEC - 80 - 8/31/14
    REG - 89 - 2/27/15
    Praise Jesus! I'm done!!

    Study resources:
    Becker
    Wiley test bank

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  • #581855
    M.O.D.
    Member

    before you can understand 3 way variance you have to understand 4 way variance

    You combine 2 of the 4 into one and you get the 3 way variance.

    The 4 way are: VOH price, VOH efficiency, FOH price/spending and FOH volume

    3 way: price/spending (combined), VOH efficiency, and FOH volume

    2 way: price/spending + VOH efficiency (aka = entire flex budget variance) and FOH volume

    BA Mathematics, UC Berkeley
    Certificates in CPA and EA preparation, College of San Mateo
    CMA I 420, II 470
    FAR 91, AUD Feb 2015 (Gleim self-study)

    #581856
    Tux
    Member

    Thanks. I'll spend some more time on this to see if I understand.

    My initial question would be –

    Does 3 way variance ONLY apply to OH, and NOT materials or labor?

    So materials and labor would ONLY use the 2 way (since fixed prices don't apply to them)

    and OH will have both a 2 way and 3 way variance??

    FAR - 86 - 2/27/14
    AUD - 75 - 5/29/14
    BEC - 80 - 8/31/14
    REG - 89 - 2/27/15
    Praise Jesus! I'm done!!

    Study resources:
    Becker
    Wiley test bank

    #581857
    M.O.D.
    Member

    Yes, the 3 (and 4) way variances only apply to OH: Variable AND Fixed OH.

    2 of the variances are for variable OH and 2 for the fixed OH and they add up to 4 variances.

    labor and material variances are not described with “ways”

    the 2 VOH variances correspond to price/spending and efficiency for materials and labor

    the 2 FOH variances are similar: one is for spending but the second one is for volume (something that is difficult to understand – you need to study this – it has to do with capacity usage – they charge a volume variance if the factory produces less than budgeted (or favorable if it produces more) – this indicates a kind of opportunity efficiency)

    BA Mathematics, UC Berkeley
    Certificates in CPA and EA preparation, College of San Mateo
    CMA I 420, II 470
    FAR 91, AUD Feb 2015 (Gleim self-study)

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