VARIANCE ANALYSIS

Variable overhead variance – meaning, causes and formula.

Variable overhead variance - meaning, causes and formula.

Variable overhead variance: Variable overheads vary directly with the volume of output and hence, the standard variable overheads very directly with the volume of output and hence, the standard variable overhead rate remains uniform. Therefore, computation of variable overhead variance, also known as variable overhead cost variance parallels the material and labour cost variances. read more

Labour Rate of Pay or Wage Rate Variance – meaning and formula.

Labour Rate of Pay or Wage Rate Variance - meaning and formula.

Labour Rate of Pay or Wage Rate Variance – It is that part of labour cost variance which arises due to a change in specified wage rate. Labour rate variance arises due to

  • change in basic wage rate or piece-work rate,
  • employing persons of different grades then specified,
  • payment of more overtime than fixed earlier, (iv) new workers being paid different rates than the standard rates, and
  • different rates being paid to workers employed for seasonal work or excessive work load.

The wage rates are determined by demand and supply conditions of labour conditions in labour market, wage board awards, etc. So, wage rate variance is generally uncontrollable except if it arises due to the development of wrong grade of labour for which production foreman will be responsible. read more

Idle Time Variance – meaning and formula.

Idle Time Variance - meaning and formula.

Idle Time Variance – This variance is the standard cost of actual time paid to workers for which they have not worked due to abnormal reasons. The Reasons for idle time may be power failure, defect in machinery, and non supply of materials, etc. Idle time variance should be segregated from the labour efficiency variance otherwise it will show inefficiency on the part of workers though they are not responsible for this. Idle time variance is always adverse and needs investigation for its causes. This variance is calculated as: read more

Material Usage Variance – meaning.

Material Usage Variance - meaning.

Material usage (or quantity) variance arises due to the difference in standard quantity specified and actual quantity of materials used.

Material usage variance may also arise due to:

  • Negligence in use of materials,
  • More wastage of materials by untrained workers or defective methods of production
  • Loss due to pilferage, 
  •  Use of material mix other than the standard mix
  • More or less yield from materials than the standard set, and
  • Defective production necessitating the use of additional materials.

Materials usage variance= Standard Price (Standard Quantity – Actual Quantity) The quantities of material specified and actually used are taken and standard price per unit is used. If the answer from the above mentioned formula is in plus, the variance will be a favorable variance but if the answer is in minus the variance will be unfavorable or adverse. read more