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ACCA Applied Skills · Performance Management · Planning and operational variances

A company set a standard material price of $10 per kg. Due to a market-wide shortage, the actual price paid was $12 per kg, and the ex-post (revised) standard price was agreed as $11.80 per kg. Which of the following statements about the price variances is correct?

The planning variance is $1.80 per kg adverse (original $10 versus revised $11.80) and the operational variance is $0.20 per kg adverse (revised $11.80 versus actual $12). Together they equal the total $2.00 adverse price variance.

  1. AThe planning variance is $1.80 per kg adverse and the operational variance is $0.20 per kg adverseCorrect
  2. BThe planning variance is $2.00 per kg adverse and the operational variance is $0.20 per kg favourable
  3. CThe planning variance is $0.20 per kg adverse and the operational variance is $1.80 per kg adverse
  4. DThe planning variance is $1.80 per kg favourable and the operational variance is $0.20 per kg adverse

Explanation

Planning variance = original standard $10 minus revised standard $11.80 = $1.80 adverse per kg. Operational variance = revised standard $11.80 minus actual $12.00 = $0.20 adverse per kg. The two sum to the total $2.00 adverse. Option C reverses the two figures.

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