ExpertEasy2 marksMultiple Choice
ACCA · Question 24 · Budgeting and control
Section B - Case 2: GreenYield Agri
GreenYield Agri produces 'CropBoost', a specialized liquid fertilizer. The standard mix for 10,000 liters of input is:
- Chemical A: 6,000 liters at $10 per liter
- Chemical B: 4,000 liters at $15 per liter
Standard normal loss is 20% of input (so 10,000 liters input yields 8,000 liters of CropBoost).
During May, a global shortage caused the market price of Chemical A to unexpectedly rise to $12 per liter. GreenYield's management decides to revise the standard price retrospectively to evaluate the purchasing manager's performance fairly.
The difference between the original standard cost and the revised standard cost is known as what type of variance?
Section B - Case 2: GreenYield Agri
GreenYield Agri produces 'CropBoost', a specialized liquid fertilizer. The standard mix for 10,000 liters of input is:
- Chemical A: 6,000 liters at $10 per liter
- Chemical B: 4,000 liters at $15 per liter
Standard normal loss is 20% of input (so 10,000 liters input yields 8,000 liters of CropBoost).
During May, a global shortage caused the market price of Chemical A to unexpectedly rise to $12 per liter. GreenYield's management decides to revise the standard price retrospectively to evaluate the purchasing manager's performance fairly.
The difference between the original standard cost and the revised standard cost is known as what type of variance?
Answer options:
A.
Operational variance
B.
Planning variance
C.
Mix variance
D.
Yield variance
How to approach this question
Recall the definitions of planning and operational variances. Planning = Original Std vs Revised Std. Operational = Revised Std vs Actual.
Full Answer
B.Planning variance✓ Correct
A planning variance (also known as a revision variance) measures the difference between the original standard set at the beginning of the period and a revised standard that reflects uncontrollable changes in market conditions. It removes the effect of these external factors so that the operational variance can fairly measure the manager's actual performance.
Common mistakes
Confusing planning variance with operational variance.
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