CIMA -Managerial Paper P1 (Mgt Accounting - Performance Evaluation) - Pg 236

Planning Variance: or revision variance - campares an original standard with a

revised standard that would have been used if the planner had known what was going
to happen

Operational Variance: or Operating variance - compares an actual results with

revised standard

Example 6.2:
At the beginning of 20x0, WB set a standard marginal cost for its
major product of $25 per unit. The standard cost is recalculated
once a year. Actual production cost during August 20x0 were
304000, and actual units 8,000 produced

With the benefit of hindsight, the management of WB realized that

realistic standard cost for current conditions would be $40 per unit.
The planned Standard cost of $25 is unrealistically low.

Required: Calculate the total planning and operational variance

Planning Variance:
Standard Cost (8,000 x $ 25) 200,000
Revised Standard (8,000 x $ 40) 320,000
Planning Variance 120,000

Operational variance:
Revised Standard (8,000 x $ 40) 320,000
Actual Cost 304,000
Operational Variance 16,000
Total Variance 104,000

Tradtional Variance:
Standard Cost (8,000 x $ 25) 200,000
Actual Cost 304,000
104,000
- Pg 236

what was going

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