Video: Variance Analysis - Practice Questions

In this lesson, dive into the practical aspect of managerial accounting as Nick Palazzolo, CPA, demystifies variance analysis with a series of practice questions. Nick stresses the importance of memorizing variance formulas for scoring 'free points' on the exam and walks through how to methodically approach each question with a "plug and chug" mentality. From direct labor efficiency variances to variable overhead spending variances, learn how to decipher each part of the equation, understand the interplay of standard versus actual quantities and rates, and quickly identify whether a variance is favorable or unfavorable. With Nick's enthusiasm for the subject, grasp how to handle these questions deftly and recognize the influence different managerial roles have on various variances; all conveyed through relatable, scenario-driven examples.

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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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Doodle variants, multiple choice questions, gotta love them. And why do I love them? Because they're relatively simple, relatively straightforward, and free points in the exam so long as you memorize. So memorize, memorize. Lots of formulas here, but as long as you memorize each variance formula, you will receive lots of free points in the exam. So put up the work and you'll do well. First thing I'm going to do here, lots of information, especially for variances, I want to read the question first. What is the direct labor efficiency variance, blah, blah, blah. That's it. That's all we care about. What you should do, direct labor efficiency variance, definitely be memorized. If you don't have it memorized, definitely do that. I would go through these questions and answer them yourself. It's just free points, right? Because watch this, our standard layout for these formulas is something minus something times something. And usually, not usually, I mean every time, we're going to have standard minus actual. So standard, and what is it? In this case, it's quantity minus actual quantity times standard rate. Couple points here. Within the formula, you see it's quantity. Now it's efficiency variance. How efficient do you use your materials? And sorry, in this case, it's labor. So how efficient do you use your labor? So that's why a standard quantity of hours minus actual quantity of hours times. And then what's essentially the driver for these hours? How do you get your dollar amount? You have a rate. So it's non-monetary amounts times a monetary amount. You need for all these variances to turn them into dollars somehow. So that's why you're going to usually invoke a rate. I'm trying to explain this and why we have what we do in the formula.

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