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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 ³variance´. 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 exception. of management by ‡ ‡ 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 ) .

cost of st. mix) * st. mix] standard cost of actual mix .‡ Actual weight of mix differs from the standard weight of mix :[(total weight of actual mix/total weight of st.

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. .

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 :-  .Then.

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 .