Title: Variance Analysis
Course: BAC300: Management Accounting I (PEBL) > Section: LESSON NINE: Variance Analysis

1.1  Introduction

In this first lesson, we lay the foundation for the entire course by defining the concept entrepreneurship and other related terms. Throughout our teaching experiences, we have found that an understanding of the basic principles behind the subject and their applications increases the students’ motivation for the subject. We therefore introduce you to the theories upon which entrepreneurship study is based and encourage you to engage in in-depth discussions of these concepts and theories. Since the term entrepreneurship is closely associated with small businesses, we introduce the concept of small business too. The purpose of this lesson is to enable you understand fundamental concepts and theories of entrepreneurship.

9.1 Introduction

Lesson-level overview | Lesson/week/section | 9.
Lesson name: | Variance Analysis
Aim of the lesson: | This lesson will enable you to apply standard costing in evaluating financial performance
This lesson covers:
- Cost variances.
- Computation of cost variances.
- Sales variances.
Intended learning outcomes:
At the end of this lesson, you will be able to:

1. Classify types of cost variances.
2. Compute cost variances.
3. Explain sales variances.

Overview of student activity: | 1.Pre-lesson activity – brainstorming on your understanding of favourable and adverse variances before face to face class 2. Engaging in e-tivities 9.1, 9.2, 9.3 that involves  reading linked resources and watching videos on variances and their sub-variances , cost computation 3. Interactions on the discussion forums

Constructive alignment of lesson level outcomes with module level outcomes, learning activities and assessment

(Pressing <Tab> at the end of the table will provide additional rows in the table, if required.)
Intended Lesson learning outcomes: | No of module-level outcome | Activity where students engage with this outcome | Where and how is this outcome assessed?
At the end of this lesson, you will be able to:
Classify types of cost variances | 4 | 9.1 | 9.1 (b) Essay question
Compute cost variances | 4 | 9.2 | 9.2 (a), (b) and (c) Calculation questions
Explain sales variances | 4 | 9.3 | 9.3 (a) and (b) Essay questions (c) and (d) Calculation questions

Detailed explanation of ALL student and teacher engagement with the Lesson:

(This should be presented in the order that the activities take place.  So, if students do work online before coming to the lecture, that should be shown ahead of what happens in class.

If there is more than one opportunity for face-to-face contact, or more than one online task, there should be a separate section for each instance, and they should be presented in the template in the same order that students encounter them.)

Content – such as lecture material – can EITHER be shown here OR added as clearly identifiable addenda to the document.  If you plan to use addenda, you should ensure that these are cross-referenced in this section.)
Module-level outcomes addressed:
Lesson nine addresses module learning outcome 4, evaluate of financial performance.
Purpose of the lesson/week/section:
This lesson enables you to evaluate differences between standard costs and actual costs, budgeted sales and actual sales
Over to you: (a description of the process of the section)
You will start with a pre-lesson activity that requires you to brainstorm on your understanding of favourable and adverse variances before face to face class where your facilitator will introduce you to variance analysis, types of cost and sales variances. You will thereafter read the linked resources to get more details of the variances and their sub-variances before computing cost in e-tivities 9.3
Pre-lesson activity: | Number of hours | 1
Brainstorm on your understanding of Favourable and Adverse variances. Why is more emphasis placed on adverse variances?
Face to face time: (if applicable) | Number of hours | 1
Explain the learning outcomes

Explain the link between the previous lesson and the current one

Introduce variance analysis, types of cost and sales variances
= Total number of hours | 4 |

E-tivity 9.1

Online activity: | Number of hours | 1
What should students do?
E-tivity 9.1

The picture above shows basic cost variances which are important in management accounting decisions. Read more on resource 1 and  resource 2 Chapters  10.3,10.4 10.5and then:

(a) Explain the following cost variances and their sub-variances:

(i) Material cost variances.

(ii) Labour cost variances.

(iii) Overhead variances.

(b) Once you have posted your answers on the discussion forum, read what three of your colleagues in the tutorial groups have posted and note on cost variances and sub-variances. Add any new point to your notes.
Where do they do it? | On the discussion forum 9.1
By when should they do it? | Before next lesson.
E-moderator/tutor role
Read thorough the comments in the discussion forum and provide feedback
How are the learning outcomes in this lesson assessed? | Number of hours | 1
Essay questions
How does this section link to other sections of the module?
It is a continuation on variance analysis and forms the basis for further interactions in lesson 10

E-tivity 9.2

Online activity: | Number of hours | 1
What should students do?
E-tivity 9.2

Read resource 1, resource 2 and resource 3. Watch video1, video2 and video3 . Use the information to assist in the following  computations:

(a) The following from ABC limited for producing a single product:

 | Standard Quantity | Actual quantity
Material usage per unit | 4kgs | 3kgs
Price per kg | Sh. 14 | Sh. 15

Actual output 1,000 units

Calculate:

(i) Material cost variance

(ii) Material usage variance

(iii) Material price variance

(b) The following from ABC limited for producing a single product:

 | Standard Labour hours | Actual Labour hours
Labour hour per unit | 5 | 4
Wage rate per hour | Sh. 20 | Sh. 22

Actual output 1,000 units

Calculate:

(i) Labour cost variance

(ii) Labour efficiency variance

(iii) Labour rate variance

(iv) Idle time variance

(c) The following information extracted from highway Limited related to variable factory overheads;

Standard hours allowed           2 hours per unit

Standard cost allowed            sh.3 per direct labour hour

Actual production                  80 units

Actual direct labour hours     165 hours

Actual overheads incurred      sh.518

Calculate:

(i) Variable overhead cost variance

(ii) Variable factory overhead efficiency variance

(iii) Variable factory overhead spending variance

(d) Once you have posted your answers on the discussion forum, read what three of your colleagues in the tutorial group have posted and verify your answers and make corrections to your answer if necessary.
Where do they do it? | On the discussion forum 9.2
By when should they do it? | Before the next lesson.
E-moderator/tutor role
Ensure that learners are focused on the tasks provided
How are the learning outcomes in this Lesson assessed? | Number of hours | 1
Computational questions
How does this section link to other sections of the module?
It is a continuation on variance analysis and forms the basis for further interactions in lesson 10.
= Total number of hours | 4 |

E-tivity 9.3

Online activity: | Number of hours | 1
What should students do?
E-tivity 9.3

Watch video1 and video2, and then:

(a)  Explain sales variance.

(a) Outline the sub-variances of sales variance.

(b) A Limited has the following data regarding its sales for a Month.

Budgeted sales 2,500 units

Budgeted selling price sh. 22 per unit

Actual sales 2,400 units

Actual selling price sh. 20 per unit

Calculate:

(i) Sales variance

(ii) Sales price variance

(iii) Sales volume variance.

(c) B Limited has the following data regarding its sales for the Month of January.

Budgeted sales 5,000 units

Budgeted selling price sh. 25 per unit

Actual sales 5,200 units

Actual selling price sh. 26 per units

Calculate:

(i) Sales variance

(ii) Sales price variance

(iii) Sales volume variance.

(d) Once you have calculated the sales variances, post your answers on the discussion forum. Compare your answers with three of your colleagues in the tutorial group and make corrections to your answer if necessary.
Where do they do it? | On the discussion forum 9.3
By when should they do it? | Before the next lesson.
E-moderator/tutor role
Ensure that learners are focused on the calculations and providing feedback on the answers given on the discussion forum.
How are the learning outcomes in this lesson assessed? | Number of hours | 1
Essay and computational questions
How does this section link to other sections of the module?
It lays foundation for the planning process covered by next lesson.

Some important questions

Which learning resources/ references will scaffold the students’ learning?
1. MitchelL, F., Moyne, C. Patty, G. & Dixon, C. (2019) Principles of accounting, Vol 2:managerial accounting, OpenStax , Houston, Texas ., chapter 8.
2. Jonick, C. (2019) Principles of Managerial Accounting. Business

Administration, Management, and Economics Open Textbooks. Chapter 8.

1. Kurt, H., Sierra, C. Joe, & H. (2012) Managerial accounting, Saylor Foundation. Chapter 10.
2. Farhat(2018) Accounting Lectures Sales variances: retrieved from https://www.youtube.com/watch?v=KovBW0oG-58
3. Farhat's (2018)  Accounting Lectures material cost variance and labour cost variance https://www.youtube.com/watch?v=964fuGi-gy4
4. Nptelhrd (2015) Variance analysis : retrieved from https://www.youtube.com/watch?v=TShJHrU6aFg
5. Kanwaljeet K.(2017) standard costing retrieved from https://www.youtube.com/watch?v=TNB3M2BdxFU
How are students enabled to access the resources? | Resources are shared in the module that is loaded in the Learning Management System (LMS) and all students have access to it. The same module is placed on the OER Africa website.
Where in this lesson are students expected to work collaboratively? | Discussion forum 9.1, 9.2, and 9.3
How has an inclusive approach been incorporated in this lesson? | a) Use of multimedia resources in the module and differentiated learning activities. b) Use university computer labs, all resources are downloadable for offline use and discounted data bundles are available to students. c) Use of accessibility button for learners with special needs on the LMS.
How will feedback on lesson be obtained from students? | Through the posts in the discussion forum 9.1,9.2and 9.3
How will student feedback be used to improve lesson? | By incorporating suggestions in the course for the current and subsequent cohorts.
At which point(s) will students receive formative feedback on the work they have done in the lesson? | Before the next lesson.