VARIANCE ANALYSIS

VIJAYKUMAR PATAGUNDI

Definitions
Variance

Variance Analysis

Actual
Budgeted Standard

Production Cost Production Cost Production Cost

Classification
Material Variance Labour Variance Overheads Variance Sales Variance

Material Cost Variance

MCV=(SQ*SP)-(AQ*AP) Material Price Variance
(SP-AP)*AQ

Higher or lower prices paid than planned. Discounts received or foregone depending upon

quantity bought. Purchase of superior or inferior quality of material than planned. Buying substitute materials. Increase in charges such as transport cost.

Material Cost Variance

Material Usage Variance
(SQ-AQ)*AQ Low or high yield from material than expected. Gain or loss arising out of substitute materials.

Diff in the quality of materials than planned.

Increased or decreased quantity of scrap than

expected. Use of sub-standard or defective material. Carelessness in the use of materials. Defective method of production. Wrong mixture of raw materials.

Labour Cost Variance

LCV=(AH*AR)-(SH*SR) Labour Price Variance
(SR-AR)*AH Payment of high wage rate than estimated. Use of more skilled or unskilled labours than

planned. Payment of excess bonus than estimated. Payment of more overtime premium than estimated.

Labour Cost Variance

Labour Usage/Efficiency Variance
(SH-AH)*SR Use of inferior grade of Labour. Lack of good supervision.

Use of sub-standard quality of materials.

Breakdown of machines during production process. Inadequate working conditions such as poor

lighting, lack of ventilation, heating etc. Lack of proper production organization involving defective production planning, routing, scheduling, inspection etc.

Labour Cost Variance

Idle Time Variance
IH*SR Adverse variance

Overhead Variance
Standard Fixed overhead Rate

=Budgeted fixed overhead/Normal volume

Standard Variable OH Rate

=Budgeted variable overhead/Normal volume

Overhead Variance
VOH Expenditure Variance VOHCV VOH Efficiency Variance FOH Expenditure Variance OHCV FOH Efficiency Variance

FOH Volume Variance

FOHCV FOH Capacity Variance Calendar Variance Seasonal Variance

Variable Cost Overhead

VOHCV=SOHC-AOHC

Based on rate per hour

SOHC=Std hour for actual output * Std OH rate per

hour
Based on rate per unit
SOHC=Actual output * Std OH rate per unit

Variable Cost Overhead

VOH Expenditure Variance
Based on rate per hour =(Std VOH rate per hr * actual hrs worked) Actual VOH Based on rate per unit =(Std VOH rate per unit actual VOH rate per unit) * Actual output

VOH Efficiency Variance

=(Std qty of output * actual qty of output) * Std rate per unit

Fixed Overhead Variance

FOHV=(Std hrs for actual output * Std fixed OH

rate) Actual fixed OH

FOH expenditure Variance

=(Budgeted qty * std fixed OH rate per unit) Actual . fixed OH =Budgeted fixed OH Actual fixed OH
FOH Efficiency Variance

=(Std qty of production Actual qty of production for actual capacity) * Std FOH rate per unit =(Std hrs for actual production Actual hrs

Fixed Overhead Variance

FOH Volume Variance

=(AQ-BQ) * SR =(Std hrs for actual production Actual hrs worked) * Std FOH rate
FOH Capacity Variance
Due to working at higher or lower capacity than std

capacity.

Sales Variance
Sales Margin Sales Turnover Standard Sales Margin
Total sales margin variance Sales margin price variance Sales margin volume variance

Sales Turnover
Sales value variance Sales price variance Sales volume variance

Thank You