ACCA Applied Skills · Performance Management

Planning and operational variances: formula sheet

Full chapter guide

Key formulas

Total variance: Traditional variance = Planning variance + Operational variance; Use this as a check on every answer.
Planning variance (price): (Original standard price − Revised standard price) × Actual quantity; Favourable if the revised cost is lower than the original. Adverse if it is higher.
Operational variance (price): (Revised standard price − Actual price) × Actual quantity; Favourable if actual cost is below the revised standard.
Planning variance (quantity or hours): (Original standard quantity for actual output − Revised standard quantity for actual output) × Standard price; Use the price the question tells you to use. Keep the same price in both parts.
Operational variance (quantity or hours): (Revised standard quantity for actual output − Actual quantity) × Standard price; Compares actual use with what should have been used under the ex-post standard.
Revised (ex-post) standard: Revised standard = standard you would have set using actual market conditions; Usually given in the question, such as a revised price per kg or a revised market size.
Planning variance: Planning variance = original standard cost of actual output − revised standard cost of actual output; Adverse if the revised cost is higher (or revised profit lower). Same logic for revenue or contribution, with the sign reversed.
Operational variance: Operational variance = revised standard cost of actual output − actual cost; Adverse if actual cost is higher than the revised standard. For quantities, price the difference at the revised standard.
Operational usage or efficiency variance: (Revised standard quantity for actual output − actual quantity) × revised standard price; Price at the revised standard, not the original.
Operational price or rate variance: (Revised standard price − actual price) × actual quantity; Actual quantity purchased (or used for the labour rate).
Total variance check: Planning variance + operational variances = total variance against the original standard; Use this to check your answer. Mind the signs: Adverse items add together, Favourable items offset.
Ex-post sales volume: Ex-post budget volume = actual market size × budgeted market share; Planning sales volume variance = (original budget volume − ex-post volume) × standard contribution per unit, Adverse if ex-post is lower.
Material planning price variance: (Original standard price − Revised (market) price) × Actual quantity; Positive is favourable, negative is adverse. Use the quantity purchased if the question has inventory changes, otherwise the quantity used.
Material operational price variance: (Revised (market) price − Actual price) × Actual quantity; Uses the same quantity as the planning price variance. Positive is favourable.
Material planning usage variance: (Original standard quantity for actual output − Revised standard quantity for actual output) × Original standard price; Both quantities are for the actual units produced. Positive is favourable.
Material operational usage variance: (Revised standard quantity for actual output − Actual quantity used) × Revised (market) standard price; The ACCA PM convention values the planning usage variance at the original standard price and the operational usage variance at the revised (market) price. Positive is favourable. Always follow the valuation basis the question or examiner states.
Reconciliation check: Planning price + Operational price = Traditional price variance; This check holds for price. The usage variances do not add up to the traditional usage variance, because they are valued at different prices (original and revised). The four-variance total therefore also differs from the traditional total. Do not try to force a usage reconciliation.
Revised standard quantity: Revised usage per unit × Actual units produced; Never use budgeted units. Flex to actual output first.
Labour rate planning variance: (Original standard rate − Revised standard rate) × Revised standard hours for actual output; Positive is favourable, negative is adverse. If the revised rate is higher, it is adverse.
Labour efficiency planning variance: (Original standard hours for actual output − Revised standard hours for actual output) × Original standard rate; Original rate is used because the rate change has already been picked up in the rate planning variance.
Labour rate operational variance: (Revised standard rate − Actual rate) × Actual hours paid; Actual rate = actual labour cost ÷ actual hours paid.
Labour efficiency operational variance: (Revised standard hours for actual output − Actual hours worked) × Revised standard rate; Use hours worked, not hours paid, when idle time is given.
Idle time variance: Idle hours × Revised standard rate (always adverse); Idle hours = hours paid − hours worked.
Check: Planning + Operational = Variance against the original standard; Use this to test your answer. Total labour variance = original standard cost of actual output − actual cost.
Market size variance: (Actual market size − Budgeted market size) × Budgeted market share % × Standard contribution per unit; Uses budgeted share, so it isolates the market effect. Positive result is F, negative is A. Market size must be in the same units as sales.
Market share variance: (Actual market share % − Budgeted market share %) × Actual market size × Standard contribution per unit; Uses actual market size, so it isolates the effect of share. Positive result is F, negative is A.
Actual market share: Actual market share % = Actual sales units ÷ Actual market size; Use this when the question gives sales and market size but not the share.
Check total: Market size variance + Market share variance = Sales volume variance = (Actual sales units − Budgeted sales units) × Standard contribution per unit; If your two answers do not add up to this, one of them is wrong.
Total variance split: Traditional variance = Planning variance + Operational variance; Use this to check your working. Both parts must carry the same sign logic (A or F) and add to the total.
Planning price variance (material): (Original standard price − Revised standard price) × Actual quantity; Positive means favourable, negative means adverse. It is outside the purchasing manager's control.
Operational price variance (material): (Revised standard price − Actual price) × Actual quantity; Controllable by the purchasing manager.
Planning usage or efficiency variance: (Original standard quantity or hours for actual output − Revised standard quantity or hours for actual output) × Standard price or rate; Caused by a faulty or outdated standard, for example a changed method or material.
Operational usage or efficiency variance: (Revised standard quantity or hours for actual output − Actual quantity or hours) × Standard price or rate; Controllable by production managers. Use the price or rate the question tells you to use, and use the same one in both parts so they reconcile.
Responsibility rule: Operational variance = controllable; Planning variance = generally not controllable by operational managers; Only a rule of thumb. Comment on whether the original standard or the revision was reasonable.

Quick revision

Planning variance: original standard compared with revised (ex-post) standard.
Operational variance: revised standard compared with actual result.
Planning plus operational equals the traditional total variance, so use this as a check.
Planning variances are usually not the operating manager's responsibility.
Operational variances show how well managers performed against a realistic standard.
Always use the revised standard as the base for operational variances.
Keep a consistent sign rule: more profit or lower cost than expected is favourable.
The sales volume variance splits into a planning variance (original budget versus revised budget, for example from a change in market size) and an operational variance (revised budget versus actual). The planning sales variance is the market size variance, and the operational sales variance is the market share variance.
Market size variance is the planning variance and is usually treated as uncontrollable by the sales team.
Market share variance is the operational variance and reflects the sales team's performance against the market.
A large planning variance suggests the original standard was poorly set.
Objective test answers are all or nothing, so check units, signs and the base used.

Common mistakes

Calculating the planning variance on the budgeted quantity instead of the actual quantity. Fix: Use actual quantity purchased, or the standard quantity for actual output. The comparison must be on the same activity level.
Getting the sign wrong, for example calling a rise in market price favourable. Fix: Ask whether cost is lower or higher than the comparison point. Lower is favourable, higher is adverse.
Pricing the operational usage variance at the original standard price. Fix: Once you have a revised standard, every operational variance uses the revised price, rate or contribution.
Calculating the planning variance on budgeted output instead of actual output. Fix: Both the original and revised costs must be for actual output. For sales volume, the units differ because the question is about volume.
Using budgeted output instead of actual output when working out standard quantities. Fix: Always calculate actual units produced first. Multiply both the original and revised usage per unit by that figure.
Mixing up which price is used in each variance, for example comparing original price with actual price in the operational variance. Fix: Think of a ladder: original, then market, then actual. The first step down is planning and the second step is operational.
Using actual hours for the rate planning variance. Fix: Planning compares standards, so use the revised standard hours for actual output. Actual hours only appear in operational variances.
Using the revised rate in the efficiency planning variance. Fix: Value the hours change at the original rate. The rate change is already in the rate planning variance.
Using actual share in the market size variance, or budgeted market size in the market share variance. Fix: Remember the rule: market size variance holds share at budget; market share variance holds market size at actual.
Valuing the variances at selling price or revenue per unit. Fix: Use standard contribution per unit (marginal costing) or standard profit per unit (absorption costing), as the sales volume variance does.

Exam tips

Always show the revised standard clearly as its own line. Markers give credit for it even if a later step is wrong.
Section C questions usually ask you to calculate and then comment. Spend time on the comment: say which part is controllable and who is accountable.
In objective test questions, read which variance is asked for. A common wrong option is the traditional variance, which you get by skipping the revised standard.
Do the add-up check every time. It takes a few seconds and catches sign and quantity errors.
Be ready to discuss limits: the ex-post standard is hard to set objectively, and managers may argue over what counts as uncontrollable.
Underline the words market, revised, ex-post or uncontrollable in the question. They tell you a planning split is expected.
In Section C, set out the three bases clearly (original, revised, actual) in a small working. Marks go for correct method even if one figure is wrong.
In objective questions, check whether you are asked for the planning or the operational variance, and whether the sign (A or F) matters in the options.