VARIANCE ANALYSIS
Variances are to be calculated for each department separately.
The standard/Budgeted values means the Budgeted Values for actual Output.
This Budget is called Flexible Budget ( How to Prepare?)
Variances are always the difference between values actually used and Budgeted
values for actual output.
All variances are in Dollars/Rupees.
Any Variance = Some Quantity * Some Price ? Another quantity*another price.
For any Case, follow the following steps:
1) identify causes for the variance
2) Hold some Department to be responsible for it.
3) Suggest remedial, if possible
2 Golden Rules:
Cost Control is always done on Actual Output
Inefficiency of one department should never be attributed/overlapped to
another department.
VARIANCE OUTPUT
INPUT
SALES
Variance
MATERIAL
Variance LABOUR
Variance
OVERHEAD
Variance
USE AT YOUR OWN RISK
USE AT YOUR OWN RISK 2
MATERIAL VARIANCE:
AQ ? ACTUAL Quantity
SQ ? Standard Quantity
AP ? ACTUAL Price
SP ? Standard Price
SM ? Standard Mix
AM ? ACTUAL Mix
AO AQ AM AP
AO AQ AM SP Price Variance
AO AQ SM SP Mix Variance
AO SQ SM SP Yield Variance
Yield + Mix = Usage/Quantity Variance
MATERIAL VARIANCE
PRICE VARIANCE
AQ@AM*(AP ? SP)
QUANTITY/USAGE
VARIANCE
SP*(AQ@AM-SQ@SM)
MIX VARIANCE
SP*(AQ@AM-AQ@SM)
YIELD VARIANCE
SP*(AQ@SM-SQ@SM)
USE AT YOUR OWN RISK
USE AT YOUR OWN RISK 3
LABOUR VARIANCE:
AH ? ACTUAL Hours
SH ? STANDARD Hours
AM ? ACTUAL Mix
SM ? STANDARD Mix
AR ? ACTUAL Rate
SR ? STANDARD Rate
AO AH AM AR
AO AH AM SR Rate Variance
AO AH SM SR Mix Variance
AO SH SM SR Efficiency Variance
Efficiency + Mix = Hours Variance
LABOUR VARIANCE
RA ...