Skip to content

ACCA Applied Skills · Performance Management · Planning and operational variances

Tarn Co's original standard price for material was $8 per kg. The ex-post price was $9 per kg. Actual purchases were 5,000 kg at $8.70 per kg. What are the material planning price variance and operational price variance?

Planning price variance is (9 − 8) × 5,000 = $5,000 adverse, and operational price variance is (9 − 8.70) × 5,000 = $1,500 favourable. Together they give the traditional $3,500 adverse price variance.

  1. APlanning $5,000 adverse; operational $1,500 favourableCorrect
  2. BPlanning $5,000 adverse; operational $1,500 adverse
  3. CPlanning $1,500 favourable; operational $5,000 adverse
  4. DPlanning $3,500 adverse; operational $1,500 favourable

Explanation

Planning price = (9 − 8) × 5,000 = $5,000 adverse. Operational price = (9 − 8.70) × 5,000 = $1,500 favourable, since actual cost was below the revised standard. Total of $3,500 adverse equals the traditional price variance (8 − 8.70 = 0.70 × 5,000).

Did you get it right without looking?

One question tells you little. A timed set on Planning and operational variances shows your real accuracy, how long you take and where you lose marks.

Practise Planning and operational variancesFree diagnostic mock

More Planning and operational variances questions