Quantity Variances – Performance Metrics Assignment Help
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What is Quantity Variances – Performance Metrics in Accounting?
Performance Metrics are those which determine an organization’s behavior and performance. Performance metrics measure and organization’s activities and performance. It should support a range of stakeholder needs such as shareholders, employees to customers. Developing performance metrics usually follows a process of:
- Establishing critical processes/customer requirements
- Identifying specific, quantifiable outputs of work
- Establishing targets against which results can be scored.
One method of preparing performance metrics is by measuring the quantity variance.The quantity variance is the difference between actual usage and expected usage (i.e. what should have been used to produce the actual output) multiplied by the standard price. This variance typically applies to direct materials in the manufacture of any product, but it could apply to anything – number of hours of machine time used, square footage used and so on.
The formula is
Quantity Variances = Usage difference *standard price.
(Standard usage- actual usage)* Standard price
It can be caused by:
i)Variation in yield from materials.
ii) Change in design of product, machinery, tools or method of processing not yet recognized in standards. Etc
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