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ACCA Applied Skills · Performance Management · Planning and operational variances

Tolland Co's original flexed budget labour cost for the actual output was $90,000. The same output, costed at the revised (ex-post) standards, would have cost $99,000. The actual labour cost was $97,200. What are the total labour planning and total labour operational variances?

Planning variance is $9,000 adverse and operational variance is $1,800 favourable. The standard was revised upward from $90,000 to $99,000 for the actual output, and actual cost of $97,200 beat the revised standard. Together they reconcile to the $7,200 total adverse variance.

  1. APlanning $9,000 adverse; operational $1,800 favourableCorrect
  2. BPlanning $9,000 adverse; operational $1,800 adverse
  3. CPlanning $7,200 adverse; operational $1,800 favourable
  4. DPlanning $1,800 favourable; operational $9,000 adverse

Explanation

Planning = original flexed $90,000 − revised flexed $99,000 = $9,000 adverse. Operational = revised flexed $99,000 − actual $97,200 = $1,800 favourable. Together they give $7,200 adverse, which is the total variance against the original flexed budget; that total is not the planning variance.

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