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Brought Forward Knowledge

Variance analysis

What is a variance

Variance is the diference between standard (planned or budgeted)amounts (cost or revenue) and the actual amounts.

Types o variances

Variance analysis can be categorized in to 3 main types

!". Variable cost variance

#irect $aterial% #irect &abour and Variable 'verhead

!. i*ed cost variance

!3. +ales variances

Standard

Total Variance

Actual

Usage/ Efficiency/ VolumePrice/ Rate/ Expenditure

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01. Variable cost variances

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Total Direct Material Cost Variance

+td material * -ctual no. o -ctual material cost/ost per unit units produced incurred

Material Price Variance

( +td material cost 0 -ctual material cost ) -ctual material per 1g per 1g purchased or used2

2..

Material Usage Variance

( +td material usage * -ctual units 0 -ctual 4aw ) +td raw material

per unit produced material used price per 5g

Total Direct Material Cost Variance

Material Usage VarianceMaterial Price Variance

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Total Direct labour cost Variance

+td labour * -ctual no. units 0 -ctual labour/ost per unit produced cost incurred

Labour Rate Variance

(+td labour rate 0 -ctual labour rate) -ctual hours wor1ed per hour per hour

Labour efciency Variance

(+td labour hours * -ctual units 0 -ctual hours ) +td labour per unit produced actively2 wor1ed rate perhour

Idle time Variance6dle hrs 7 +td labour rate per hour

2..

Total Direct a!our Cost Variance

a!our Efficiency Variancea!our Rate Variance

6dle Time

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Total variable O/ Cost Variances

+td variable '89 * -ctual no. units 0 -ctual variable o8h cost/ost per unit produced incurred

Variable O/ e!"enditure variance

( +td variable '89 0 -ctual variable '89 ) -ctual -ctive2 e*penditure per e*penditure per active2 hrs wor1ed hour hour

Variable O/ efciency Variances

( +td hrs per * no o units 0 -ctual active2 ) std variable '89 :nit produced hrs per hour

2..

02. Fixed O/H variance

Total Varia!le "/# Cost Variance

Variable '89 e;ciencyVariable '89 e*penditure

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Total #i!ed O/ cost variance

i*ed '89 * -ctual activity 0 -ctual

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$ales Price Variance

( +tandard selling price 0 -ctual selling price ) -ctual no. o units sold per unit per unit

$ales Volume "ro%t variance

(=udgeted sales units 0 -ctual sales units) +tandard pro

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Variances calculated can be used to reconcile the diference between budgetpro