# Unit 9: Variance Analysis

Unit 9: Variance Analysis

There are two type of variances viz.

cost variance and revenue variance.

Cost variance can be further classifi ed into three categories: (a) Material Cost Variance (b) Labour Cost Variance and (c) Overhead Variance   Revenue Variance includes Sales Variance.

The material cost variance is in between the standard material cost for actual production in units and actual cost.

Material price variance is a variance in between two different prices viz.

the standard price and actual price of raw materials.

Materials Usage Variance = Standard Price × (Standard quantity of materials for actual output – Actual quantity of materials used)   Material Sub-usage Variance = Standard Cost per unit (Standard Quantity – Revised Standard Quantity).

Material yield variance is one of the components of the material usage variance which arises only due to the deviation in between the standard yield determined and the actual yield accrued.

Labour Variance Analysis, is studying the deviation in between the actual cost of the labour incurred and standard/budgeted cost of the labour.

The overhead variance is defi ned is as the variance in between standard cost of overhead estimated for the actual output and actual cost of overhead really incurred.

Sales variances is the only component accompanied the profi t volume variance of the business transaction.

The sales variances are computed and analysed in order to study the effect of sales value and facilitates the sales manager to easily understand the various sales efforts taken by the team.

Cost Variance: Identifying the deviations in between the actual cost and standard cost which was already determined.

Favourable Cost Variance: It is due to greater standard cost over the actual cost.

Favourable Revenue Variance: It is due to greater actual revenue than the standards.

Revenue Variance: Identifying the deviations in between the actual revenue and early determined standard revenue.

Standard: It is a predetermined or estimate fi gure calculated by considering the ideal conditions of the work environment.

Unfavourable Cost Variance: It is due to greater actual cost than the determined standard cost.

Unfavourable Revenue Variance: It is an outcome due to greater standard sales than the actual sales.

Variance: It is tool of standard costing in determining the deviations of the enterprise from the early estimates.