Video: Examples of Variance Calculations

In this lesson, master the intricacies of various variance calculations with the engaging guidance of Nick Palazzolo, CPA. Specifically focusing on direct material and labor variances, Nick demystifies the process of pinpointing discrepancies between actual and standard costs. Key concepts such as direct material price and quantity usage variances, direct labor rate and efficiency variances, along with variable overhead rate and efficiency variances, are broken down with a practical, example-driven approach. The session promises to make plugging numbers into memorized formulas an intuitive exercise, backed by Nick's light-hearted encouragement to imagine these variances in real business scenarios, blending technical skills with environmental considerations for a well-rounded understanding.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Now, diving into our questions. Now what I've done here is tried to provide as much of the same information as possible. We've got a bunch of different ways we are using these formulas here and it's relatively the same information. And this is how a question could be presented. It'll just give you this and it'll say, give me the direct material price variance.

Now, for your convenience, under the assumption you don't have it memorized, I provided all the formulas on top right here. Direct material price variance. It's plug and chug right here. Well, actual quantity purchased. Okay, well this is electronics, TV manufacturing.

Let's see what we purchased. Well, if you look through all the information provided now the information could be in a paragraph format or maybe it's in a chart table. Don't worry. Trust the system. Right?

Trust the system. The system tells you is what I'm telling you. It's going to be to have these formulas and just look for what you need. Actual quantity purchase is £700. We plug that in there.

Actual price, have this memorized, which is great. Actual price we look through. Okay. Actual purchase price. Because think about what this is.

We're not talking about the actual selling price. This is the price you purchased materials for. Actual purchase price is $12 per pound. We plug that in and then standard price conveniently placed above at $10.12. Minus ten is one, two, you didn't do that. Needed a calculator. Please practice some more math. And then two times 700 is 1400 unfavorable. Now, generally multiple choice questions, Sims, et cetera, will have you plug in the number at its absolute value, meaning non-negative.

So just read the instructions. Don't get tripped up by that. Don't lose points because you put it in negative or

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