Explore topic-wise InterviewSolutions in .

Material sub usage VARIANCE is CALCULATED :

• When QUANTITY of wastage is not GIVEN
• When quality of output is not given

Material sub usage variance is calculated :

Material sub USAGE variance is measured by using the formula is:

(STANDARD QUANTITY - REVISED standard quantity) * Standard PRICE

Material sub usage variance is measured by using the formula is:

(Standard quantity - Revised standard quantity) * Standard price

LABOUR COST VARIANCE is measured as: 

TOTAL standard labour cost of actual output - Total actual cost of actual output

Labour cost variance is measured as: 

Total standard labour cost of actual output - Total actual cost of actual output

The FORMULA used for calculation of labour rate variance is:

(STANDARD rate per HOUR - ACTUAL rate per hour) * Actual Hours

The formula used for calculation of labour rate variance is:

(Standard rate per hour - Actual rate per hour) * Actual Hours

the formula to labour EFFICIENCY variance is:

(STANDARD TIME - ACTUAL time) * Standard rate per hour

the formula to labour efficiency variance is:

(Standard time - Actual time) * Standard rate per hour

LABOUR RATE VARIANCE and labour EFFICIENCY variance is: 2,160 and Rs 2,000 both unfavorable.

labour rate variance and labour efficiency variance is: 2,160 and Rs 2,000 both unfavorable.

Labour MIX VARIANCE is ALSO KNOWN as Gang composition variance.

Labour mix variance is also known as Gang composition variance.

The formula to ESTIMATE LABOUR Mix VARIANCE is:

(Standard rate per HOUR - Actual rate per hour) * Actual HOURS

The formula to estimate Labour Mix variance is:

(Standard rate per hour - Actual rate per hour) * Actual Hours

There are several problems with variance analysis that keep many companies from using it. They are:

• Time delay: The accounting staff compiles the variances at the end of the month before ISSUING the results to the management team. In a fast-paced ENVIRONMENT, management needs feedback much faster than once a month, and so tends to rely upon other measurements or warning flags that are generated on the SPOT (especially in the production area).
• Variance source INFORMATION: Many of the reasons for variances are not located in the accounting records, so the accounting staff has to sort through such information as bills of material, labor routings, and overtime records to DETERMINE the causes of problems. The extra work is only cost-effective when management can actively correct problems based on this information.
• Standard setting: Variance analysis is essentially a comparison of actual results to an arbitrary standard that may have been derived from political bargaining. Consequently, the resulting variance may not yield any useful information.

There are several problems with variance analysis that keep many companies from using it. They are:

It is not necessary to track all of the preceding variances. In many organizations, it may be sufficient to review just one or two variances. For example, a services organization (such as a consulting BUSINESS) might be solely CONCERNED with the labor EFFICIENCY variance, while a MANUFACTURING business in a highly competitive market might be mostly concerned with the purchase PRICE variance. In other words, put most of the variance analysis effort into those variances that make the most difference to the company if the underlying issues can be rectified.

It is not necessary to track all of the preceding variances. In many organizations, it may be sufficient to review just one or two variances. For example, a services organization (such as a consulting business) might be solely concerned with the labor efficiency variance, while a manufacturing business in a highly competitive market might be mostly concerned with the purchase price variance. In other words, put most of the variance analysis effort into those variances that make the most difference to the company if the underlying issues can be rectified.

Variable OVERHEAD efficiency variance: SUBTRACT the BUDGETED units of ACTIVITY on which the variable overhead is charged from the ACTUAL units of activity, multiplied by the standard variable overhead cost per unit.

Variable overhead efficiency variance: Subtract the budgeted units of activity on which the variable overhead is charged from the actual units of activity, multiplied by the standard variable overhead cost per unit.

Labor efficiency variance: SUBTRACT the STANDARD QUANTITY of labor consumed from the actual amount and multiply the remainder by the standard labor rate PER hour.

Labor efficiency variance: Subtract the standard quantity of labor consumed from the actual amount and multiply the remainder by the standard labor rate per hour.

Material YIELD variance: SUBTRACT the total standard quantity of materials that are SUPPOSED to be USED from the actual level of use and multiply the remainder by the standard price PER unit.

Material yield variance: Subtract the total standard quantity of materials that are supposed to be used from the actual level of use and multiply the remainder by the standard price per unit.

SELLING price variance: The actual selling price, minus the STANDARD selling price, multiplied by the NUMBER of UNITS SOLD.

Selling price variance: The actual selling price, minus the standard selling price, multiplied by the number of units sold.

FIXED overhead SPENDING variance: The TOTAL amount by which fixed overhead costs EXCEED their total standard cost for the reporting period.

Fixed overhead spending variance: The total amount by which fixed overhead costs exceed their total standard cost for the reporting period.

Variable OVERHEAD spending variance: SUBTRACT the STANDARD variable overhead cost per unit from the actual cost incurred and multiply the remainder by the TOTAL unit quantity of OUTPUT.

Variable overhead spending variance: Subtract the standard variable overhead cost per unit from the actual cost incurred and multiply the remainder by the total unit quantity of output.

Labor RATE VARIANCE: The actual price PAID for the direct labor USED in the production process, minus its standard cost, multiplied by the number of units used.

Labor rate variance: The actual price paid for the direct labor used in the production process, minus its standard cost, multiplied by the number of units used.

PURCHASE price variance: The actual price PAID for materials USED in the production PROCESS, minus the standard cost, multiplied by the number of units used.

Purchase price variance: The actual price paid for materials used in the production process, minus the standard cost, multiplied by the number of units used.

Here are the most commonly-derived variances used in variance analysis:

• Purchase PRICE variance.
• Labor RATE variance
• VARIABLE overhead spending variance
• Fixed overhead spending variance
• Selling price variance
• Material yield variance
• Labor EFFICIENCY variance
• Variable overhead efficiency variance

Here are the most commonly-derived variances used in variance analysis: