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BasicVarianceAnalysis!

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A variance is the diference between an actual reexpected result. In standard costing, cost variancediference between the standard costs and actual

units produced.

Variance analysis is the process by which the totdiference between standard and actual results is a

When actual results are better than expected resuhave a favourable variance (F). I actual resultsthan expected results, we have an adverse varia

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CostVariances!

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Variance Analysis Cost Variances

he Co!parison o standards to Actual results oVariable and "ixed Costs

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It Consist o #

$aterial Variances

%abour Variances

Variable &' Variances

"ixed &' Variances

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Material Variances

he otal variance can be sub classi(ed in to #

$aterial )rice Variance

$aterial *sage Variance

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Key Proforma

++)

*sage

A+)

)rice

AA)

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Labour Variances

he otal variance can be sub classi(ed in to #

%abour -ate Variance

%abour /ciency Variance

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Key Proforma

+'+-

/ciency

A'+-

-ate

A'A-

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Variable OH Variances

he otal variance can be sub classi(ed in to #

xpenditure Variance

/ciency Variance

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Key Proforma

+'+-

/ciency

A'+-

xpenditure

A'A-

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Fixed OH Variances

he otal "ixed &verhead Variance will be si!ilar to tunder0over absorption o overhead.

he otal variance can be sub classi(ed in to #

Volu!e Variance I the co!pany produces !ore oand hence absorb !ore or less &' than budgeted

xpenditure Variance I the co!pany spends !ore(xed overhead than budgeted.

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Key Proforma

+tandard "ixed &' Cost

Volu!e

1udgeted "ixed &' Cost

xpenditure

Actual "ixed &' Cost

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Furter Analysis

+'+-/ciency

A'+-

Capacity

1'+-

xpenditure

A'A-

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SalesVariance!

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!evenue Variances " #ales Variances $ O%erat#tatements

Calculating Variances associated with revenues areconciling 1udgeted )ro(ts or Contribution to AcContribution

+ales Variances identiy any changes between thprice and the standard cost

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Key Formula

Volu!e Variance

2A+ 1+3 x +)$

)rice Variance

2A) +)3 x A+

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OperatingStatements!

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Absor%tion 'ostin& O%eratin& #tatements

4ey )roor!a

1udgeted )ro(t 5+ales Volu!e Variance 5+td )ro(t 5+ales )rice Variance 5

A+ +td Co+ 5Cost Variances 5Actual )ro(t 5

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MarginalCosting - Differences

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Mar&inal 'ostin&

Variances that re!ain the sa!e

All Variable Cost Variances

+ales )rice Variance

"ixed &' xpenditure Variance

Variances that Changes

+ales Volu!e Variance

"ixed &' Volu!e Variance

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Mar&inal 'ostin& O%eratin& #tatements

4ey )roor!a

1udgeted Contribution 5+ales Variances 5A+ +td Variable Co+ 5Variable Cost Variances 5

Actual Contribution 51udegted "ixed &' 5 5"ixed &' Variances 5 5Actual )ro(t 5

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e controllability of *xed costs

'ommitted *xed costs are those costs arising rpossession o plant, e6uip!ent, buildings and anad!inistration depart!ent to su%%ort te lon&"tneeds of te business. hese costs 2depreciatioad!inistration salaries3 are largely non"controllasort term because they have been co!!itted bter! decisions afecting longer7ter! needs.

+iscretionary *xed costs, such as advertising aand develop!ent costs, are incurred as a result o !anage!ent decision, but could be raised or lo,fairly sort notice 2irrespective o the actual voluroduction and sales .

ll bili d d l ibili

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'ontrollability and dual res%onsibility

uite oten a particular cost !ight be the res%onst,o or more mana&ers.

A re%ortin& system must allocate res%onsibila%%ro%riately

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e controllability of *xed costs

'ommitted *xed costs are those costs arising rpossession o plant, e6uip!ent, buildings and anad!inistration depart!ent to su%%ort te lon&"tneeds of te business. hese costs 2depreciatioad!inistration salaries3 are largely non"controllasort term because they have been co!!itted bter! decisions afecting longer7ter! needs.

+iscretionary *xed costs, such as advertising aand develop!ent costs, are incurred as a result o !anage!ent decision, but could be raised or lo,fairly sort notice 2irrespective o the actual voluroduction and sales .

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e controllability of *xed costs

'ommitted *xed costs are those costs arising rpossession o plant, e6uip!ent, buildings and anad!inistration depart!ent to su%%ort te lon&"tneeds of te business. hese costs 2depreciatioad!inistration salaries3 are largely non"controllasort term because they have been co!!itted bter! decisions afecting longer7ter! needs.

+iscretionary *xed costs, such as advertising aand develop!ent costs, are incurred as a result o !anage!ent decision, but could be raised or lo,fairly sort notice 2irrespective o the actual voluroduction and sales .

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Doubts!

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Thanou!