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By .. Yatish Tiwari (171) Amit Kumar Singh

Variance analysis involves comparing actual costs or profits to standards to identify deviations. Variances can be classified as favorable, unfavorable, controllable, and uncontrollable. It is important for management to analyze variances to identify causes and take corrective action. Common variances include material, labor, overhead, and sales variances which can be further broken down into cost, price, quantity, mix, yield, and efficiency variances.

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Yatish Tiwari
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128 views23 pages

By .. Yatish Tiwari (171) Amit Kumar Singh

Variance analysis involves comparing actual costs or profits to standards to identify deviations. Variances can be classified as favorable, unfavorable, controllable, and uncontrollable. It is important for management to analyze variances to identify causes and take corrective action. Common variances include material, labor, overhead, and sales variances which can be further broken down into cost, price, quantity, mix, yield, and efficiency variances.

Uploaded by

Yatish Tiwari
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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By…..

YATISH TIWARI (171)

AMIT KUMAR SINGH (172)


Variance Analysis

The deviation of the actual cost or profit or


sales from the standard cost or profit or sales
is known as “variance”.

Analysis of variance is helpful in controlling


the performance and achieving the profits that
have been planned.

-
Variances can be classified as :-
 Favorable variances
 UnFavourable variances
 Controllable
 Uncontrollable
Importance of variance analysis

• To find out the causes or circumstances


leading to it so that management can take
proper steps.
• Implementation of management by
exception.
• Variances as a control device.
Analysis of variances

 Direct material variance


 Direct Labour variance
 Overhead variance
 Sales variance
Material variances
 Material cost variance
 Material price variance
 Material usage or quantity variance
 Material mix variance
 Material yield variance
Material cost variance

 Material cost variance = standard cost of


material for actual output – actual cost of
material used
OR

 Material cost variance = material price


variance + material usage or quantity
variance.
Material price variance
• Direct material price = actual usage x
(standard unit price – actual unit price)

Material usage or quantity


variance
 Direct material usage variance = standard
price per unit ( standard quantity – actual
quantity )
Material mix variance

In case of material mix variance 2 situations


may arise :-
 Actual weight of mix and standard weight
do not differ :-
standard unit cost ( standard quantity –
actual quantity )
•Actual weight of mix differs from the standard
weight of mix :-
[(total weight of actual mix/total weight of
st. mix) * st. cost of st. mix]
-
standard cost of actual mix
Material yield variance
Yield variance = Standard rate ( actual yield –
standard yield )
where,
Standard rate = Standard cost of standard mix
Net standard output
Labour variances

Labour cost variance (LCV)
 Labour rate variance (LRV)
 Total labour efficiency variance (TLEV)
 Labour efficiency variance ( LEV)
 Labour idle time variance ( LITV)
 Labour mix variance or gang composition
variance ( LMV or GCV )

Labour yield variance or labour efficiency
sub variance. (LYV or LESV )
Labour cost variance

Labour cost variance = Standard cost of


labour – actual cost of labour.

Labour rate variance

Rate of pay variance = Actual time taken


( standard rate – actual rate )
Total Labour efficiency variance
Total labour efficiency variance = standard
rate ( standard time for actual output –
actual time paid for )

Labour efficiency variance

Labour efficiency variance = standard rate


( standard time for actual output – actual
time worked )
Labour idle time variance
Idle time variance = abnormal idle time *
standard rate

Labour mix or gang composition


variance
 If there is no change in standard
composition of labour force and total time
expected is equal to the total expected time.
Then,
Labour mix variance = standard cost of
standard composition – actual cost of actual
composition

If the standard composition of labour force is


revised due to shortage of a particular type of
labour and the total time expected is equal to
the standard time , the formula is :-
Labour mix variance = standard cost of
revised standard composition – standard
cost of actual composition

Labour yield variance

Labour yield variance = standard cost per


unit (standard output for actual mix – actual
output )
Overhead cost variance

It can be classified as :-
 Variable overhead variance
 Fixed overhead variance
 Variable overhead variance
Variable overhead variance = actual output x
(standard variable overhead rate – actual
variable overheads)

 Fixed variable overhead


Fixed overhead variance = actual output x
(standard fixed overhead rate per unit –
actual fixed overheads)
Sales variances

Sales variances can be analysed as :-


 Total sales margin variance
 Sales margin variance due to selling price
 Sales margin variance due to volume
 Sales margin variance due to sales mixture
 Sales margin variance due to sales quantities
Total sales margin variance
Total sales margin variance = actual profit –
budgeted profit

Sales margin variance due to


selling price

Sales margin variance = Actual quantity of


sales ( actual selling price per unit –
standard selling price per unit )
Sales margin variance due to
volume
Sales margin variance = standard profit per
unit ( actual quantity of sales – budgeted
quantity of sales )

Sales margin variance due to


sales mixture
Sales margin variance = standard profit per
unit ( actual quantity of sales – standard
proportion of actual sales )
Sales margin variance due to sales
quantities

Sales margin variance = standard profit per


unit ( standard proportion for actual sales –
budgeted quantity of sales )
OR
Revised standard profit – budgeted profit

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