VARIANCE

 Variance means the difference between standard cost and comparable actual cost incurred during a period.

 Actual cost < standard cost= unfavourable or adverse variance.

 Actual cost > standard cost= favourable variance.

 Material variance:

1) Direct material cost variance=(standard cost for actual output-actual cost),standard cost = standard price * standard quantity for actual output, actual cost= actual price * actual quantity.

2) Direct material price variance=actual quantity(standard price-actual price) 3) Material usage/ quantity variance = standard price (standard quantity for actual output- actual output)

4) Material mix variance = (Revised standard quantity – actual quantity) * standard price, RSQ = Standard quantity for each material/ total standard quantity for all material * total actual quantity of all material. Or if AQ> RSQ then RSQ = total actual quantity/ total standard quantity * standard quantity of each material.

5) Material yield variance=(actual yield–standard yield)*standard output price, whereas standard output price is the total standard material cost per unit of output. Standard yield= actual usage of material / standard usage per unit of output or total actual quantity/ input/ output, standard material cost per unit of output = standard cost / output.

 Direct labour cost variance – the labour directly engaged in the production of a product is known as direct labour.

 The wages paid to such labour is known as direct wages.

 Labour variance arises when actual labor cost are different from standard labour cost.

1) Direct labour cost variance=standard labour cost–actual labour cost,standard labor cost= standard hour* standard rate, actual labour cost= actual hour * actual rate

2) Labor rate variance=actual hour paid(standard rate-actual rate)

3) Labor time variance or labor efficiency variance=standard rate(standard hour for actual production – actual hour work)

 4) Labor idle time variance=idle hour*standard rate

5) Labor mix variance= (revised standard hour- actual hour worked)* standard

rate

6) Labour revised efficiency variance=standard hour of grade/standard hour*total actual hour.

7) Labour yield variance=(Actual yield–standard yield)standard labor cost per unit, standard yield = standard output/total actual hour * actual hour worked, standard labor cost per unit = standard cost/ standard output * standard rate.