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Variance Analysis

Objective
Price

Cost

Quantity

Profit

Rate

Revenue

Quantity

Variance Analysis
Establish Standard for Cost and
Revenue
Accumulate Actual Cost/Revenue
Find Variance
Undertake Variance Analysis

Important Terms
Standard Cost: Scientifically pre-determined
cost.
a Ideal Standard
a Expected Standard

Standard Costing: Process of establishing the


standard cost

Variance: the difference between the actual and


standard. It may be favourable or Un-favourable

Total Cost
Material Cost + Labour Cost + Overheads
Fixed Cost + Variable Cost
Prime Cost + Factory Expenses + Admin Expenses
+ Selling Expenses

Variance Components

T o ta l C o s t V a ri n a c e
M a te ri a l C o s t V a ri a n c e L a b o u r C o s t V a ri a n c e

O ve rh e a d V a ri a n c e

Variance Components
M a t e r ia l C o s t V a r ia n c e
P r ic e V a r ia n c e

Q u a n t it y V a r ia n c e

M ix V a r ia n c e

Y ie ld V a r ia n c e

Material Variances
Material Cost Variance = SCM ACM =
(SQ*SP )- (AQ* AP)

Material Price variance = (SP AP) AQ


Material Quantity Variance = (SQ AQ) * SP
Material Mix Variance = (SM- AM ) * SP
Material Yield Variance = (SY- AY)* SR

Material Variance

SQ = standard input qualnity


AQ = Actual input quantity
SM = Actual input in standard ratio (Mix)
AM = Actual input in actual ratio
SY = Standard output from actual output
AY = Actual output