Scribd
Upload
144 views8 pages

Cost Control via Variance Analysis

Variance analysis can be used to control costs by identifying and determining the cause of differences between expected and actual costs. It calculates cost variances, investigates reasons for variances, reports this information to management, and takes corrective action. Key elements of variance analysis include purchase price, labor rate, variable and fixed overhead spending, selling price, material yield, labor efficiency, and variable overhead efficiency variances. Variance analysis uses formulas to calculate the difference between budgeted and incurred costs.

Uploaded by

Algie C. Dag-uman
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
144 views8 pages

Cost Control via Variance Analysis

Variance analysis can be used to control costs by identifying and determining the cause of differences between expected and actual costs. It calculates cost variances, investigates reasons for variances, reports this information to management, and takes corrective action. Key elements of variance analysis include purchase price, labor rate, variable and fixed overhead spending, selling price, material yield, labor efficiency, and variable overhead efficiency variances. Variance analysis uses formulas to calculate the difference between budgeted and incurred costs.

Uploaded by

Algie C. Dag-uman
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

VARIANCE

CONTROL
COST CONTROL
ALGIE C. DAG-UMAN
How can variance analysis be used to
control costs?

 Variance analysis can be used to


control costs it involves assessing the
difference between two figures. It is
a tool applied to financial and
operational data that aims to identify
and determine the cause of the
variance.
Variance Analysis identify and
determine the ff:

1.It Calculates the difference between an


incurred cost and an expected cost.
2.It investigates the reasons for the
difference.
3. It reports this information to management.
4.It takes corrective action to bring the
incurred cost into closer alignment with
the expected cost.
Elements of Variance Analysis

 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.
Ex PPV = AP – (SC x No. of Units)
 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.
Elements of Variance Analysis

 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.
Ex. VOSV = (AC – SVOC) (TUQO)
 Fixed overhead spending variance. The total
amount by which fixed overhead costs exceed
their total standard cost for the reporting period.
Ex. FOSV = FO – SCFO)
Elements of Variance Analysis

 Selling price variance. The actual selling price, minus


the standard selling price, multiplied by the number
of units sold.
Ex. SPV = ACSP – (SSP x No. of 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.
Ex. MYV = (TSQM – ALU) x SPU
Elements of Variance Analysis

 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.
Ex. LEV = (AM – SQLC) - SLRPH
 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.
Ex. VOEV = (BUA – AUA) x SVOCPU
SIMPLE VARIANCE
ANALYSIS FORMULA

VARIANCE ANALYSIS = (BUDGETED COST) -


(INCURRED COST)
= 40,000 – 35,000
= 5,000

You might also like