{"id":1827,"date":"2020-04-12T09:13:51","date_gmt":"2020-04-12T08:13:51","guid":{"rendered":"http:\/\/ihmnotessite.com\/?page_id=1827"},"modified":"2020-04-12T09:21:53","modified_gmt":"2020-04-12T08:21:53","slug":"variance-analysis","status":"publish","type":"page","link":"https:\/\/ihmnotessite.com\/index.php\/home\/introduction-to-costing-sales-controls-classification-of-costs-food-control-systems-causes-of-high-food-cost-the-advantages-of-food-and-beverage-cost-control-purchasing-purchase-procedure-purchas\/variance-analysis\/","title":{"rendered":"VARIANCE ANALYSIS"},"content":{"rendered":"\t\t<div data-elementor-type=\"wp-page\" data-elementor-id=\"1827\" class=\"elementor elementor-1827\">\n\t\t\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-3e4b7a0 elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"3e4b7a0\" data-element_type=\"section\" data-e-type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-3c7377d\" data-id=\"3c7377d\" data-element_type=\"column\" data-e-type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-ce1742d elementor-widget elementor-widget-image\" data-id=\"ce1742d\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"image.default\">\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<img fetchpriority=\"high\" decoding=\"async\" width=\"600\" height=\"195\" src=\"https:\/\/ihmnotessite.com\/wp-content\/uploads\/2020\/04\/Variance.jpg\" class=\"attachment-large size-large wp-image-1831\" alt=\"\" srcset=\"https:\/\/ihmnotessite.com\/wp-content\/uploads\/2020\/04\/Variance.jpg 600w, https:\/\/ihmnotessite.com\/wp-content\/uploads\/2020\/04\/Variance-300x98.jpg 300w\" sizes=\"(max-width: 600px) 100vw, 600px\" \/>\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-eb2163d elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"eb2163d\" data-element_type=\"section\" data-e-type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-ee65a87\" data-id=\"ee65a87\" data-element_type=\"column\" data-e-type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-53de0aa elementor-widget elementor-widget-text-editor\" data-id=\"53de0aa\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t\t\t\t\t\t<h2><span style=\"color: #000000;\">Definition of Variance Analysis<\/span><\/h2>\n<p><span style=\"color: #000000;\">In accounting, a&nbsp;<em style=\"font-weight: inherit;\">variance&nbsp;<\/em>is the difference between an actual amount and a budgeted, planned or past amount.&nbsp;<em style=\"font-weight: inherit;\">Variance analysis<\/em>&nbsp;is one step in the process of identifying and explaining the reasons for different outcomes.<\/span><\/p>\n<p><span style=\"color: #000000;\">Variance analysis is usually associated with a manufacturer&#8217;s product costs. In this setting, variance analysis attempts to identify the causes of the differences between a manufacturer&#8217;s 1) standard or planned costs of the inputs that should have occurred for the actual products manufactured, and 2) the actual costs of the inputs used for the actual products manufactured.<\/span><\/p>\n<h2><span style=\"color: #000000;\">Example of Variance Analysis<\/span><\/h2>\n<p><\/p>\n<p><span style=\"color: #000000;\">Assume that a company manufactured 10,000 units of product (output). The company&#8217;s standards indicate that it should have used $40,000 of materials (an input), but it actually used $48,000 of materials. The variance analysis may include the following:<\/span><\/p>\n<ul>\n<li><span style=\"color: #000000;\">There is an $8,000 unfavorable variance which needs to be analyzed<\/span><\/li>\n<li><span style=\"color: #000000;\">The $8,000 variance can be separated into a price variance and a quantity variance<\/span><\/li>\n<li><span style=\"color: #000000;\">The price variance identifies whether the actual cost per pound of the input was more or less than the planned or standard cost per pound<\/span><\/li>\n<li><span style=\"color: #000000;\">The quantity variance identifies whether the actual quantity of the input used was more or less than the planned or standard quantity for the actual output<\/span><\/li>\n<\/ul>\n<p><span style=\"color: #000000;\">The variance analysis of&nbsp;manufacturing overhead costs&nbsp;is more complicated than the variance analysis for materials. However, the variance analysis of manufacturing overhead costs is important since these costs have become a large percentage of manufacturing costs.<\/span><\/p>\n<p><span style=\"color: #000000;\"><strong>&nbsp;<\/strong><\/span><span style=\"color: rgb(0, 0, 0); font-size: 20px;\">Types of Variances<\/span><\/p>\n<p><span style=\"color: #000000;\">There is a need of knowing types of variances before measuring the variances. Generally, the variances are classified on the following basis.<\/span><\/p>\n<ol>\n<li><span style=\"color: #000000;\"><strong style=\"font-style: inherit;\"><u>On the basis of Elements of Cost<\/u><\/strong>.<\/span><\/li>\n<\/ol>\n<ol>\n<li><span style=\"color: #000000;\">Material Cost Variance.<\/span><\/li>\n<li><span style=\"color: #000000;\">Labour Cost Variance.<\/span><\/li>\n<li><span style=\"color: #000000;\">Overhead Variance.<\/span><\/li>\n<\/ol>\n<ol>\n<li><span style=\"color: #000000;\"><strong style=\"font-style: inherit;\"><u>On the basis of Controllability<\/u><\/strong><\/span><\/li>\n<\/ol>\n<ol>\n<li><span style=\"color: #000000;\">Controllable Variance.<\/span><\/li>\n<li><span style=\"color: #000000;\">Uncontrollable Variance.<\/span><\/li>\n<\/ol>\n<ol>\n<li><span style=\"color: #000000;\"><strong style=\"font-style: inherit;\"><u>On the basis of Impact<\/u><\/strong><\/span><\/li>\n<\/ol>\n<ol>\n<li><span style=\"color: #000000;\">Favorable Variance.<\/span><\/li>\n<li><span style=\"color: #000000;\">Unfavorable Variance<\/span><\/li>\n<\/ol>\n<ol>\n<li><span style=\"color: #000000;\"><strong style=\"font-style: inherit;\"><u>On the basis of Nature<\/u><\/strong><\/span><\/li>\n<\/ol>\n<ol>\n<li><span style=\"color: #000000;\">Basic Variance.<\/span><\/li>\n<li><span style=\"color: #000000;\">Sub-variance.<\/span><\/li>\n<\/ol>\n<p><span style=\"color: #000000;\">A brief explanation of the above mentioned variances are presented below<\/span><\/p>\n<h3><span style=\"color: #000000;\">1. Material Cost Variance<\/span><\/h3>\n<p><span style=\"color: #000000;\">It is the difference between actual cost of materials used and the standard cost for the actual output.<\/span><\/p>\n<h3><span style=\"color: #000000;\">2. Labour Cost Variance<\/span><\/h3>\n<p><span style=\"color: #000000;\">It is the difference between the actual direct wages paid and the direct labour cost allowed for the actual output to be achieved.<\/span><\/p>\n<h3><span style=\"color: #000000;\">3. Overhead Variance<\/span><\/h3>\n<p><span style=\"color: #000000;\">Overhead variance is the difference between the standard cost of overhead allowed for actual output (in terms of production units or labour hours) and the actual overhead cost incurred.<\/span><\/p>\n<h3><span style=\"color: #000000;\">4. Controllable Variance<\/span><\/h3>\n<p><span style=\"color: #000000;\">A variance is controllable whenever an individual or a department or section or division may be held responsible for that variance.<\/span><\/p>\n<p><span style=\"color: #000000;\">According to ICMA, London,<\/span><\/p>\n<p><span style=\"color: #000000;\"><em>Controllable cost variance is a cost variance which can be identified as primary responsibility of a specified person.<\/em><\/span><\/p>\n<h3><span style=\"color: #000000;\">5. Uncontrollable Variance<\/span><\/h3>\n<p><span style=\"color: #000000;\">External factors are responsible for uncontrollable variances. The management has no power or is unable to control the external factors. Variances for which a particular person or a specific department or section or division cannot be held responsible are known as uncontrollable variances.<\/span><\/p>\n<h3><span style=\"color: #000000;\">6. Favourable Variances<\/span><\/h3>\n<p><span style=\"color: #000000;\">Whenever the actual costs are lower than the standard costs at per-determined level of activity, such variances termed as favorable variances. The management is concentrating to get actual results at costs lower than the standard costs. It shows the efficiency of business operation.<\/span><\/p>\n<h3><span style=\"color: #000000;\">7. Unfavorable Variances<\/span><\/h3>\n<p><span style=\"color: #000000;\">Whenever the actual costs are more than the standard costs at predetermined level of activity, such variances termed as unfavorable variances. These variances indicate the inefficiency of business operation and need deeper analysis of these variances.<\/span><\/p>\n<h3><span style=\"color: #000000;\">8. Basic Variances<\/span><\/h3>\n<p><span style=\"color: #000000;\">Basic variances are those variances which arise on account of monetary rates (i.e. price of raw materials or labour rate) and also on account of non-monetary factors (such as physical units in quantity or time). Basic variances due to monetary factors are material price variance,&nbsp;<a style=\"color: #000000;\" href=\"https:\/\/accountlearning.com\/labor-rate-variance-meaning-formula-causes-for-lrv\/\">labour rate variance<\/a>&nbsp;and expenditure variance. Similarly, basic variance due to non-monetary factors are&nbsp;<strong style=\"font-style: inherit;\">material quantity variance<\/strong>,&nbsp;<strong style=\"font-style: inherit;\">labour efficiency variance<\/strong>&nbsp;and&nbsp;<strong style=\"font-style: inherit;\">volume variance<\/strong>.<\/span><\/p>\n<h3><span style=\"color: #000000;\">9. Sub Variance<\/span><\/h3>\n<p><span style=\"color: #000000;\">Basic variances arising due to non-monetary factors are further analyzed and classified into sub-variances taking into account the factors responsible for them. Such sub variances are material usage variance and material mix variance of material quantity variance.<\/span><\/p>\n<p><span style=\"color: #000000;\">Likewise, labour efficiency variance is subdivided into labour mix variance and labour yield variance. At the same time, variable overhead variance is sub-divided into&nbsp;<strong style=\"font-style: inherit;\">variable overhead efficiency variance<\/strong>&nbsp;and&nbsp;<strong style=\"font-style: inherit;\">variable overhead expenditure variance<\/strong>.<\/span><\/p>\n<h2><span style=\"color: #000000;\">Advantages of Variance analysis<\/span><\/h2>\n<p><span style=\"color: #000000;\">The following are the merits of variance analysis.<\/span><\/p>\n<ol>\n<li><span style=\"color: #000000;\">The reasons for the overall variances can be easily find out for taking remedial action.<\/span><\/li>\n<li><span style=\"color: #000000;\">The sub-division of variance analysis discloses the relationship prevailing between different variances.<\/span><\/li>\n<li><span style=\"color: #000000;\">It is highly useful for fixing responsibility of an individual or department or section for each variance separately.<\/span><\/li>\n<li><span style=\"color: #000000;\">It highlights all inefficient performances and the extent of inefficiency.<\/span><\/li>\n<li><span style=\"color: #000000;\">It is used for cost control.<\/span><\/li>\n<li><span style=\"color: #000000;\">The top management can follow the principle of management by exception. Only unfavorable variances are reporting to management.<\/span><\/li>\n<li><span style=\"color: #000000;\">Sometimes, the variances can be classified as controllable and uncontrollable variances. In this case, controllable variances are taken into consideration for further action.<\/span><\/li>\n<li><span style=\"color: #000000;\">Profit planning work can be properly carried on by the top management.<\/span><\/li>\n<li><span style=\"color: #000000;\">The results of managerial action can be a&nbsp;<a style=\"color: #000000;\" href=\"https:\/\/accountlearning.com\/importance-of-cost-reduction-in-marketing\/\">cost reduction<\/a>.<\/span><\/li>\n<\/ol>\n<p><span style=\"color: #000000;\">10. It creates cost consciousness in the minds of the every employee of business organization<\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"<p>Definition of Variance Analysis In accounting, a&nbsp;variance&nbsp;is the difference between an actual amount and a budgeted, planned or past amount.&nbsp;Variance analysis&nbsp;is one step in the process of identifying and explaining the reasons for different outcomes. Variance analysis is usually associated with a manufacturer&#8217;s product costs. In this setting, variance analysis attempts to identify the causes [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"parent":1195,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_uf_show_specific_survey":0,"_uf_disable_surveys":false,"ocean_post_layout":"","ocean_both_sidebars_style":"","ocean_both_sidebars_content_width":0,"ocean_both_sidebars_sidebars_width":0,"ocean_sidebar":"0","ocean_second_sidebar":"0","ocean_disable_margins":"enable","ocean_add_body_class":"","ocean_shortcode_before_top_bar":"","ocean_shortcode_after_top_bar":"","ocean_shortcode_before_header":"","ocean_shortcode_after_header":"","ocean_has_shortcode":"","ocean_shortcode_after_title":"","ocean_shortcode_before_footer_widgets":"","ocean_shortcode_after_footer_widgets":"","ocean_shortcode_before_footer_bottom":"","ocean_shortcode_after_footer_bottom":"","ocean_display_top_bar":"default","ocean_display_header":"default","ocean_header_style":"","ocean_center_header_left_menu":"0","ocean_custom_header_template":"0","ocean_custom_logo":0,"ocean_custom_retina_logo":0,"ocean_custom_logo_max_width":0,"ocean_custom_logo_tablet_max_width":0,"ocean_custom_logo_mobile_max_width":0,"ocean_custom_logo_max_height":0,"ocean_custom_logo_tablet_max_height":0,"ocean_custom_logo_mobile_max_height":0,"ocean_header_custom_menu":"0","ocean_menu_typo_font_family":"0","ocean_menu_typo_font_subset":"","ocean_menu_typo_font_size":0,"ocean_menu_typo_font_size_tablet":0,"ocean_menu_typo_font_size_mobile":0,"ocean_menu_typo_font_size_unit":"px","ocean_menu_typo_font_weight":"","ocean_menu_typo_font_weight_tablet":"","ocean_menu_typo_font_weight_mobile":"","ocean_menu_typo_transform":"","ocean_menu_typo_transform_tablet":"","ocean_menu_typo_transform_mobile":"","ocean_menu_typo_line_height":0,"ocean_menu_typo_line_height_tablet":0,"ocean_menu_typo_line_height_mobile":0,"ocean_menu_typo_line_height_unit":"","ocean_menu_typo_spacing":0,"ocean_menu_typo_spacing_tablet":0,"ocean_menu_typo_spacing_mobile":0,"ocean_menu_typo_spacing_unit":"","ocean_menu_link_color":"","ocean_menu_link_color_hover":"","ocean_menu_link_color_active":"","ocean_menu_link_background":"","ocean_menu_link_hover_background":"","ocean_menu_link_active_background":"","ocean_menu_social_links_bg":"","ocean_menu_social_hover_links_bg":"","ocean_menu_social_links_color":"","ocean_menu_social_hover_links_color":"","ocean_disable_title":"default","ocean_disable_heading":"default","ocean_post_title":"","ocean_post_subheading":"","ocean_post_title_style":"","ocean_post_title_background_color":"","ocean_post_title_background":0,"ocean_post_title_bg_image_position":"","ocean_post_title_bg_image_attachment":"","ocean_post_title_bg_image_repeat":"","ocean_post_title_bg_image_size":"","ocean_post_title_height":0,"ocean_post_title_bg_overlay":0.5,"ocean_post_title_bg_overlay_color":"","ocean_disable_breadcrumbs":"default","ocean_breadcrumbs_color":"","ocean_breadcrumbs_separator_color":"","ocean_breadcrumbs_links_color":"","ocean_breadcrumbs_links_hover_color":"","ocean_display_footer_widgets":"default","ocean_display_footer_bottom":"default","ocean_custom_footer_template":"0","footnotes":""},"class_list":["post-1827","page","type-page","status-publish","hentry","entry"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.4 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>VARIANCE ANALYSIS - IHMNOTESSITE<\/title>\n<meta name=\"description\" content=\"Ans: Definition of Variance AnalysisIn accounting, a variance is the difference between an actual amount and a budgeted, planned or past amount. Variance analysis is one step in the process of identifying and explaining the reasons for different outcomes. Types of VariancesThere is a need of knowing types of variances before measuring the variances. Generally, the variances are classified on the following basis.A. On the basis of Elements of Cost.1. Material Cost Variance.2. Labour Cost Variance.3. Overhead Variance.B. On the basis of Controllability1. Controllable Variance.2. Uncontrollable Variance.C. On the basis of Impact1. Favorable Variance.2. Unfavorable VarianceD. On the basis of Nature1. Basic Variance.2. 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Variance analysis is one step in the process of identifying and explaining the reasons for different outcomes. Types of VariancesThere is a need of knowing types of variances before measuring the variances. Generally, the variances are classified on the following basis.A. On the basis of Elements of Cost.1. Material Cost Variance.2. Labour Cost Variance.3. Overhead Variance.B. On the basis of Controllability1. Controllable Variance.2. Uncontrollable Variance.C. On the basis of Impact1. Favorable Variance.2. Unfavorable VarianceD. On the basis of Nature1. Basic Variance.2. 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