BEC Exam Variance Analysis

Roger Philipp, CPA, CGMA, prepares you for the CPA Exam by covering Variance Analysis in the BEC section of the exam. Perhaps the shortest section of all four sections, BEC still shouldn't be overlooked!

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Video Transcript Sneak Peek:

In order to do overhead variances, here's what we're going to do. As I said, all the variances are done in the flexible budget equation. What was the flexible budget equation we’ve learned in the past?

We learned total cost equals fixed plus variable times x. That’s you're flexible budget equation. Fixed plus variable times x, total cost, for fixed, plus variable, times x. You’ve got your fixed overhead plus your variable overhead to...per hour, times x is your activity level. So x is some cost driver, some activity level.

So our flexible budget equation is total cost equals fixed plus variable times x. When you're doing flexible budget, when you do the budget, within a budget what costs are normally the same? Fixed or fixed? Remember, within the relevant range, fixed are fixed. Variable are fixed per unit. We're looking at the x, which is the cost driver, the activity level. So that's called our flexible budget equation. We're trying to figure out what total cost will be at different levels of activity, x being your cost driver.

So, for doing all of our overhead analysis using, so we’re always going to compare something with the flexible budget equation, and the way we're going to do this is, we're going to look at, on the left side, we're going to start here with our actual overhead. Actual overhead. We're going to compare that with our flexible budget equation at actual.

We're going compare that with our flexible budget equation at standard, and then we’re going to compare that with standard of standard. What is standard of standard. That's called applied. That’s your applied overhead. That's the overhead you applied into what? WIP. Whip it good! Remember that? WIP? Work in process. That’s the amount we applied into work in process.

So, with overhead, again, don’t lose sight of the big picture...What is overhead? All the other costs in the factory except which? Direct materials, direct labor. We already gave materials and labor. Now we’re looking at overhead.