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20 Variance Analysis

The document discusses various types of variances in cost accounting, including material, labor, and overhead cost variances. It provides formulas to calculate variances and examples showing how to compute variance amounts. Material and labor cost variances can be further broken down into price, quantity, mix, and yield sub-variances. Variable overhead cost variance is the difference between actual and standard variable overhead costs. It can be caused by efficiency or spending variances. Fixed overhead cost variance is affected by spending, efficiency, and volume variances.

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407 views29 pages

20 Variance Analysis

The document discusses various types of variances in cost accounting, including material, labor, and overhead cost variances. It provides formulas to calculate variances and examples showing how to compute variance amounts. Material and labor cost variances can be further broken down into price, quantity, mix, and yield sub-variances. Variable overhead cost variance is the difference between actual and standard variable overhead costs. It can be caused by efficiency or spending variances. Fixed overhead cost variance is affected by spending, efficiency, and volume variances.

Uploaded by

achutagvkrao
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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Variance Analysis

Material Cost Variances


Material Cost Variance (MCV) is the difference between The Total Standard Material Costs (TSMC) and The Total Actual Material Cost(TAMC). MCV = (SQ x SP x AO) (AQ x AP x AO) MCV = TSMC TAMC
SQ = Standard Quantity of Usage per unit SP = Standard Price of Material per unit AO = Actual Output AQ = Actual Quantity of Usage per unit AP = Actual Price of Material per unit
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Material Cost Variances


Material Costs Material Usage per Unit (kg) Price per Unit (kg) in Rs. Standards 2 14 Actuals 2.2 15

Actual Units Produced

100

MCV = (SQ x SP x AO)-(AQ x AP x AO) MCV = (2 x 14 x 100) (2.2 x 15 x 100) MCV = Rs.2800 Rs. 3300 = - Rs.500
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Material Cost Variances


Material Cost Variance is due to Material Price Variance (MPV) & Material Usage Quantity Variance (MUV) MCV = MPV + MQV MPV = (SP AP) x AQ x AO = (14 15) x 2.2 x 100 = - Rs.220 MUV = (SQ AQ) x SP x AO = (2 2.2) x 14 x 100 = - Rs.280 MCV = - 220 + ( - ) 280 = - Rs.500
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Material Usage Variance


The Material Usage Variance could (only if required) be further analyzed into Material Mix Sub Variance (MMSV) & Material Yield Sub Variance (MYSV). MUV = MMSV + MYSV Material Mix Sub Variance is useful when there is a possibility of changing the mix of various materials used in the production of the final unit.
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Material Mix Sub Variance v/s Material Yield Sub Variance


MMSV = (Standard Mix of Actual Total Quantity of Materials Used Actual Mix of Actual Quantity Used ) x Standard Price of each Material. The Std mix to make 1 drum of 100 Kg sauce is 50 Kg Mat. X @ 2.00 + 30 Kg Mat. Y @ 3.00 + 20 Kg Mat. Z @ 4.00 The Act. input used to make 1 drum of 100 Kg sauce is: 60 Kg Mat. X + 40 Kg Mat. Y + 10 Kg Mat. Z.
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Material Mix Sub Variance


1. Std Mix is 50 : 30 : 20 for 1 drum of 100 Kgs
I.e. 5:3:2

2. Actual Input Quantity is 110 Kgs. So Standard


Mix for Actual Input Quantity should have been
55:33:22

3. MMSV =
1. Mat.X = (55 60) x 2 = - Rs.10 2. Mat.Y = (33 40) x 3 = - Rs.21 3. Mat.Z = (22 10) x 4 = + Rs.48 Net MMSV = - Rs.10 Rs.21 + Rs.48 = + Rs.17
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Material Yield Sub Variance


The MUV in this Case is MUV = (SQ AQ) x SP x AO Here AO = 1 as we are considering only One drum of sauce MUV = for Mat.X (50 60) x 2 x 1 = - Rs.20 + for Mat.Y (30 40) x 3 x 1 = - Rs.30 + for Mat.Z (20 10) x 4 x 1 = + Rs.40 MUV = - Rs.10 MUV = MMSV + MYSV. - 10 = + 17 + MYSV i.e. MYSV = - Rs.27
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Material Yield Sub Variance


Materials Std. Actual Standard Total Quantity Quantity Price Std. Cost (A) (B) ( C) (AxC) Mat.X 50 60 2 100 Mat.Y Mat.Z Total 30 20 100 40 10 110 3 4 2.70 90 80 270
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Material Yield Sub Variance


The Weighted Average Standard Price of Material is Rs 2.70 & Standard Quantity is 100 Kgs. MYSV = (SQ AQ) x SP (wtd Avg.) = (100 110) x 2.70 = - Rs.27 MUV = MMSV + MYSV - 10 = +17 + ( -) 27
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Labor Cost Variance


Labor Cost Variance (LCV) is the difference between The Total Standard Labor Costs (TSLC) and The Total Actual Labor Cost (TALC). LCV = (SH x SR x AO) (AH x AR x AO) LCV = TSLC TALC
SH = Standard Labor hours per unit SR = Standard Rate of Labor per hour AO = Actual Output AH = Actual Labor hours per unit AR = Actual Rate of Labor per hour
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Labor Cost Variance


Labor Costs Labor Hours Usage per Unit Labor Rate per Hour Actual Units Produced Standards 2 14 100 Actual 2.2 15

LCV = (SH x SR x AO)-(AH x AR x AO)


LCV = (2 x 14 x 100) (2.2 x 15 x 100) LCV = Rs.2800 Rs. 3300 = - Rs.500
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Labor Cost Variances


Labor Cost Variance is due to Labor Rate Variance (LRV) & Labor Efficiency Variance (LEV) LCV = LRV + LEV LRV = (SR AR) x AH x AO = (14 15) x 2.2 x 100 = - Rs.220 LEV = (SH AH) x SR x AO = (2 2.2) x 14 x 100 = - Rs.280 LCV = - 220 + ( - ) 280 = - Rs.500
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Labor Efficiency Variance


The Labor Efficiency Variance could (only if required) be further analyzed into Labor Mix Sub Variance (LMSV) & Labor Yield Sub Variance (LYSV). LEV = LMSV + LYSV Labor Mix Sub Variance is useful when there is a possibility of changing the mix of various class of laborers used in the production of the final unit.
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Labor Mix Sub Variance v/s Labor Yield Sub Variance


LMSV = (Standard Mix of Actual Labor Hours Worked Actual Mix of Actual Labor hours worked) x Standard Rate of each Class of Laborers. The Std Labor mix to make 1 drum of 100 Kg sauce is 50 Hrs Lbr X @ 2.00 + 30 Hrs Lbr Y @ 3.00 + 20 Hrs Lbr Z @ 4.00 The Act. Labor used to make 1 drum of 100 Kg sauce is: 60 Hr of Lbr X + 40 Hrs of Lbr Y + 10 Hrs of Lbr Z.

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Labor Mix Sub Variance


1. Std Lbr Mix is 50 : 30 : 20 for 1 drum of 100
Kgs i.e. 5:3:2 2. Actual Labor hours worked is 110 hours. So Standard Lbr Mix for Actual Labor hours worked should have been
55:33:22

3. LMSV =
1. Lbr X = (55 60) x 2 = - Rs.10 2. Lbr Y = (33 40) x 3 = - Rs.21 3. Lbr Z = (22 10) x 4 = + Rs.48 Net LMSV = - Rs.10 Rs.21 + Rs.48 = + Rs.17
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Labor Yield Sub Variance


The LEV in this Case is LEV = (SH AH) x SR x AO Here AO = 1 as we are considering only One drum of sauce LEV = for Lbr X (50 60) x 2 x 1 = - Rs.20 + for Lbr.Y (30 40) x 3 x 1 = - Rs.30 + for Lbr.Z (20 10) x 4 x 1 = + Rs.40 LEV = - Rs.10 LEV = LMSV + LYSV. - 10 = + 17 + LYSV i.e. LYSV = - Rs.27
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Labor Yield Sub Variance


Laborers Std. Hours to be Worked (A) Lbr X 50 Lbr Y Lbr Z Total 30 20 100 Actual Hours Worked (B) 60 40 10 110 Standard Rate per Labor Hour ( C) 2 3 4 2.70 Total Std. Labor Cost (AxC) 100 90 80 270
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Labor Yield Sub Variance


The Weighted Average Standard Rate of Laborers is Rs 2.70 per hour & Standard Labor Hours to be worked is 100 Kgs. LYSV = (SH AH) x SR (wtd Avg.) = (100 110) x 2.70 = - Rs.27 LEV = LMSV + LYSV - 10 = +17 + ( -) 27
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Variable Overhead Cost Variances


The Variable Overhead Cost Variances
(VOCV) is similar in treatment to the Material & Labor Cost Variances. It is the difference between the Standard Variable Overhead Costs from the Actual Variable Overhead Costs.

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Variable Overhead Cost Variances


VOCV = (SVOC AVOC ) x AO VOCV = TSVOC TAVOC VOCV = VOEV + VOSV

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Variable Overhead Cost Variances


Where
SVOC = Standard Variable Overhead Costs per Unit AVOC = Actual Variable Overhead Costs per Unit TSVOC = Total Standard Variable Overhead Costs TAVOC = Total Actual Variable Overhead Costs VOEV = Variable Overhead Efficiency Variance VOSV = Variable Overhead Spending Variance

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Variable Overhead Cost Variances


Std Labor Hours allowed: Rs.2 per unit Std Variable Costs allowed: Rs.3 per
direct labor hour Actual Production: 80 units Actual Direct Labor Hours: 165 units Actual Overheads incurred: Rs.518 Determine the VOCV ; VOEV & VOSV
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Variable Overhead Cost Variances


VOCV = (Standard Variable Overhead Costs Actual Variable Overhead Costs incurred. Standard Variable Overhead Costs = (Standard Labor Hours per Unit x Standard Variable Costs allowed per labor hour x Actual Output) Please note that here we have taken labor hours only because the cost factor used to allocate the variable overheads is labor hours !! Please use the relevant cost factor for each type of variable overhead VOCV = (2 x 3 x 80) 518 = - Rs.38
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Variable Overhead Cost Variances


The Variable Overhead Cost Variance could be due to Efficiency or Spending Variances ( Similar to Material / Labor Variances.) VOEV = {(Std. Labor Hours per Unit x Actual Output) Actual Hours } x Std. Variable Overhead Rate. { ( 2 x 80) 165 } x 3 = - Rs.15
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Variable Overhead Cost Variances


VOSV = (Actual Labor Hours Worked x
Std. Variable Overhead Rate per hour) Actual Variable Overhead costs VOSV = ( 165 x 3 ) Rs.518/- = Rs 23
Thus VOCV = VOEV + VOSV Rs.38 = Rs.15 + Rs.23
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Fixed Overhead Cost Variances


Fixed Overheads do not vary with volume of production. They are allocated at a predetermined standard fixed
overhead rate. (SFOR) SFOR = Budgeted Fixed Overhead Budgeted Volume of Activity Fixed Overhead Cost Variance (FOCV) = Total Actual Fixed Overhead Costs (TAFOC) (SFOR per hour x Std Hours per Unit (SH) x Actual Output (AO)) FOCV = FOSV + FOEV + Volume Variance FOSV = Fixed Overhead Spending Variance FOEV = Fixed Overhead Efficiency Variance
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Fixed Overhead Cost Variances


Actual Fixed O/heads = Rs.530/ Budgeted Fixed O/heads = Rs.500/ Budgeted Level of Activity = 100 units or
200 Labor Hours Std. Labour Hours allowed per unit = 2 hours per unit Actual Production = 90 units Actual Labor Hours = 190 hours.
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Fixed Overhead Cost Variances


FOCV = Rs.530 (Rs.500 /(2 x 100)units x 2x 90 units) = Rs.530
(500/200) x 2x90 = Rs.80 (unfavorable) FOSV = Total Actual Overheads Total Budgeted Overheads = Rs.530 Rs.500 = Rs.30 FOEV = [(Std. Hrs per Unit x AO) Actual Hrs Wrkd] x SFOR = [(2 x 90) 190] x 500 / (2x100) = - Rs.25 Volume Variance = (Bud.Volume - Actual Volume) x SFOR = 100 units 90 units x (500/(2x100)) =10x2.5=Rs.25. FOCV (Rs.80) = FOSV (Rs.30) + FOEV (Rs.25) + Vol. Variance (Rs.25)

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