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2. V A R I A N C E
A N A L Y S I S
It is the end result of what we had
planned and what actually happened: in
brief the difference…

3. Definition of
Variance
Analysis
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.

4. Example of Variance
Analysis
-a company manufactured 10,000 units of product (output).
-standards indicate that it should have used Rs.40,000 of
materials (an input),
but it actually used Rs.48,000 of materials.
 Rs.8,000 unfavorable variance which needs to be analyzed
 Rs.8,000 variance can be separated into a price variance and a quantity
variance
 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
 The quantity variance identifies whether the actual quantity of the input
used was more or less than the planned or standard quantity for the

7. Types of Variances
On the basis of Elements of
Cost.
1.Material Cost Variance.
2.Labour Cost Variance.
3.Overhead Variance.

8. On the basis of
Controllability
1.Controllable Variance.
2.Uncontrollable Variance.

10. On the basis of Impact
1.Favorable Variance.
2.Unfavorable Variance

11. On the basis of Nature
1.Basic Variance.
2.Sub-variance.

12. 1. Material Cost Variance
It is the difference between
actual cost of materials used and
the standard ( budgeted) cost for
the actual output.

13. 2. Labour Cost Variance
It is the difference between the
actual direct wages paid and the
direct labour cost allowed for the
actual output to be achieved.

14. Overhead Variance
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.
cost of overhead allowed actual overhead cost

15. Controllable Variance
A variance is controllable whenever
an individual or a department or
section or division may be held
responsible for that variance.

16. Uncontrollable Variance
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.

17. Basic Variances
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, labour rate variance and expenditure variance.
Similarly, basic variance due to non-monetary factors
are material quantity variance, labour efficiency
variance and volume variance.

18. Sub Variance
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.
Likewise, labour efficiency variance is subdivided
into labour mix variance and labour yield
variance.

19. Advantages of Variance
analysis
Discuss???????

20. PREDETERMINED
PROFIT
COSTS
INCOME
LOSS
BEP OF THE BUSINESS
CONTROL GROWTH PHASES OF THE BUSINESS
DISCUSS

21. SALES
BUDGET
DISCUSS
variance