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Cost accounting variance analysis

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Cost Accounting - Variance Analysis
When the actual cost differs from the standard cost, it is called variance. If the actual cost is less
than the standard cost or the actual profit is higher than the standard profit, it is called favorable
variance. On the contrary, if the actual cost is higher than the standard cost or profit is low, then
it is called adverse variance.
Each element of cost and sales requires variance analysis. Variance is classified as follows:
Direct Material Variance
Direct Labor Variance
Overhead Variance
Sales Variance
Direct Material Variance
Material variances can be of the following categories:
Material Cost Variance
Material Price Variance
Material Usage Variance
Material Mix Variance
Material Yield Variance
Material Cost Variance
Standard cost of materials for actual output Actual cost of material used
Or
Material price variance + Material usage or quantity variance
Or
Material price variance + Material mix variance + Material yield variance
Material Price Variance
Actual usage ( Standard Quantity Price Actual Unit Price)
Actual Usage = Actual Quantity of material (in units) used
Standard Unit Price = Standard Price of material per unit
Actual Unit Price = Actual price of material per unit
Material Usage or Quantity Variance

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Material usage or Quantity variance : Standard price per unit (Standard Quantity Actual
Quantity )
Material Mix Variance
Material mix variance arises due to the difference between the standard mixture of material and
the actual mixture of Material mix.
Material Mix variance is calculated as a difference between the standard prices of standard mix
and the standard price of actual mix.
If there is no difference between the standard and the actual weight of mix, then:
Standard unit cost (Standard Quantity Actual Quantity )
Or
Standard Cost of Standard Mix Standard cost of Actual Mix
Sometimes due to shortage of a particular type of material, standard is revised; then:
Standard unit cost (Revised Standard Quantity Actual Quantity)
Or
Standard cost of revised Standard Mix Standard Cost of Actual mix
If the actual weight of mix differs from the standard weight of mix, then:
Standard cost of revised standard mix ×
Total weight of actual mix mixTotal weight of revised standard mix
Material Yield Variance
When the standard and the actual mix do not differ, then
Yield Variance = Standard Rate × (Actual Yield Standard Yield)
Standard Rate =
Standard cost of standard mix Net standard output (i.e.Gross output−Standard loss)
Direct Labor Variance
Direct labor variances are categorized as follows:
Labor Cost Variance
Labor Rate of Pay Variance
Total Labor Efficiency Variance

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Cost Accounting - Variance Analysis When the actual cost differs from the standard cost, it is called variance. If the actual cost is less than the standard cost or the actual profit is higher than the standard profit, it is called favorable variance. On the contrary, if the actual cost is higher than the standard cost or profit is low, then it is called adverse variance. Each element of cost and sales requires variance analysis. Variance is classified as follows: Direct Material Variance Direct Labor Variance Overhead Variance Sales Variance Direct Material Variance Material variances can be of the following categories: Material Cost Variance Material Price Variance Material Usage Variance Material Mix Variance Material Yield Variance Material Cost Variance Standard cost of materials for actual output – Actual cost of material used Or Material price variance + Material usage or quantity variance Or Material price variance + Material mix variance + Material yield variance Material Price Variance Actual usage ( Standard Quantity Price – Actual Unit Price) Actual Usage = Actual Quantity of material (in units) used Standard Unit Price = Standard Price of material per unit Actual U ...
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