Standard Costing And Variance Analysis

The main function of a typical Standard Costing System is to compute variances.

What is a Variance and Variance Analysis?


A variance is the difference between ACTUAL and the STANDARD.


(a)  Where the actual exceeds the standard the difference is an ADVERSE variance;


(b)  Where the standard exceeds the actual, the difference is a FAVORABLE variance;


(c)  The computation, classification and investigation of the variances are called VARIANCE ANALYSIS.


(d)  Management uses variance analysis to identify the causes so that corrective action can be taken and to pinpoint responsibility.


Append below is the Summary of The Common Variances found in the Standard Costing System:


(1) Material Variances

      · Material Price Variance and

· Material Quantity Variance




(2) Labor Variances


· Labor Rate Variance and

· Labor Efficiency Variance




(3) Variable Overhead Variances

    ·  Variable Overhead Expenditure/Spending Variance

    ·  Variable Overhead Efficiency Variance



(4) Fixed Overhead Variances

    ·  Fixed Overhead Expenditure/Spending Variance

    ·  Fixed Overhead Efficiency Variance



(5) Sales Variances

· Sales Margin Price Variance

· Sales Quantity/Volume Variance



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