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# Variance Analysis

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Material variance, lab our variance etc.

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### Variance Analysis

1. 1. 11 Variance AnalysisVariance Analysis
2. 2. 22 Material Cost VariancesMaterial Cost Variances Material Cost Variance (MCV) is the differenceMaterial Cost Variance (MCV) is the difference between The Total Standard Material Costsbetween The Total Standard Material Costs (TSMC) and The Total Actual Material(TSMC) and The Total Actual Material Cost(TAMC).Cost(TAMC). MCV = (SQ x SP x AO) – (AQ x AP x AO)MCV = (SQ x SP x AO) – (AQ x AP x AO) MCV = TSMC – TAMCMCV = TSMC – TAMC SQ = Standard Quantity of Usage per unitSQ = Standard Quantity of Usage per unit SP = Standard Price of Material per unitSP = Standard Price of Material per unit AO = Actual OutputAO = Actual Output AQ = Actual Quantity of Usage per unitAQ = Actual Quantity of Usage per unit AP = Actual Price of Material per unitAP = Actual Price of Material per unit
3. 3. 33 Material Cost VariancesMaterial Cost Variances Material CostsMaterial Costs StandardsStandards ActualsActuals Material Usage per Unit (kg)Material Usage per Unit (kg) 22 2.22.2 Price per Unit (kg) in Rs.Price per Unit (kg) in Rs. 1414 1515 Actual Units ProducedActual Units Produced 100100 MCV = (SQ x SP x AO)-(AQ x AP x AO)MCV = (SQ x SP x AO)-(AQ x AP x AO) MCV = (2 x 14 x 100) – (2.2 x 15 x 100)MCV = (2 x 14 x 100) – (2.2 x 15 x 100) MCV = Rs.2800 – Rs. 3300 = - Rs.500MCV = Rs.2800 – Rs. 3300 = - Rs.500
4. 4. 44 Material Cost VariancesMaterial Cost Variances Material Cost Variance is due to Material PriceMaterial Cost Variance is due to Material Price Variance (MPV) & Material Usage QuantityVariance (MPV) & Material Usage Quantity Variance (MUV)Variance (MUV) MCV = MPV + MQVMCV = MPV + MQV MPV = (SP – AP) x AQ x AOMPV = (SP – AP) x AQ x AO = (14 – 15) x 2.2 x 100 = - Rs.220= (14 – 15) x 2.2 x 100 = - Rs.220 MUV = (SQ – AQ) xMUV = (SQ – AQ) x SPSP x AOx AO = (2 – 2.2) x 14 x 100 = - Rs.280= (2 – 2.2) x 14 x 100 = - Rs.280 MCV = - 220 + ( - ) 280 = - Rs.500MCV = - 220 + ( - ) 280 = - Rs.500
5. 5. 55 Material Usage VarianceMaterial Usage Variance The Material Usage Variance could (only ifThe Material Usage Variance could (only if required) be further analyzed into Materialrequired) be further analyzed into Material Mix Sub Variance (MMSV) & MaterialMix Sub Variance (MMSV) & Material Yield Sub Variance (MYSV).Yield Sub Variance (MYSV). MUV = MMSV + MYSVMUV = MMSV + MYSV Material Mix Sub Variance is useful whenMaterial Mix Sub Variance is useful when there is a possibility of changing the mix ofthere is a possibility of changing the mix of various materials used in the production ofvarious materials used in the production of the final unit.the final unit.
6. 6. 66 Material Mix Sub Variance v/sMaterial Mix Sub Variance v/s Material Yield Sub VarianceMaterial Yield Sub Variance MMSV =MMSV = (Standard Mix of Actual Total Quantity of Materials(Standard Mix of Actual Total Quantity of Materials Used – Actual Mix of Actual Quantity Used ) xUsed – Actual Mix of Actual Quantity Used ) x Standard Price of each Material.Standard Price of each Material. The Std mix to make 1 drum of 100 Kg sauce isThe Std mix to make 1 drum of 100 Kg sauce is 50 Kg Mat. X @ 2.00 + 30 Kg Mat. Y @ 3.00 +50 Kg Mat. X @ 2.00 + 30 Kg Mat. Y @ 3.00 + 20 Kg Mat. Z @ 4.0020 Kg Mat. Z @ 4.00 The Act. input used to make 1 drum of 100 KgThe Act. input used to make 1 drum of 100 Kg sauce is:sauce is: 60 Kg Mat. X + 40 Kg Mat. Y + 10 Kg Mat. Z.60 Kg Mat. X + 40 Kg Mat. Y + 10 Kg Mat. Z.
7. 7. 77 Material Mix Sub VarianceMaterial Mix Sub Variance 1.1. Std Mix is 50 : 30 : 20 for 1 drum of 100 KgsStd Mix is 50 : 30 : 20 for 1 drum of 100 Kgs I.e. 5:3:2I.e. 5:3:2 1.1. Actual Input Quantity is 110 Kgs. So StandardActual Input Quantity is 110 Kgs. So Standard Mix for Actual Input Quantity should have beenMix for Actual Input Quantity should have been 55:33:2255:33:22 1.1. MMSV =MMSV = 1.1. Mat.X = (55 – 60) x 2 = - Rs.10Mat.X = (55 – 60) x 2 = - Rs.10 2.2. Mat.Y = (33 – 40) x 3 = - Rs.21Mat.Y = (33 – 40) x 3 = - Rs.21 3.3. Mat.Z = (22 – 10) x 4 = + Rs.48Mat.Z = (22 – 10) x 4 = + Rs.48 Net MMSV = - Rs.10 – Rs.21 + Rs.48 = + Rs.17Net MMSV = - Rs.10 – Rs.21 + Rs.48 = + Rs.17
8. 8. 88 Material Yield Sub VarianceMaterial Yield Sub Variance The MUV in this Case isThe MUV in this Case is MUV = (SQ – AQ) x SP x AOMUV = (SQ – AQ) x SP x AO Here AO = 1 as we are considering only OneHere AO = 1 as we are considering only One drum of saucedrum of sauce MUV = for Mat.X (50 – 60) x 2 x 1 = - Rs.20MUV = for Mat.X (50 – 60) x 2 x 1 = - Rs.20 + for Mat.Y (30 – 40) x 3 x 1 = - Rs.30+ for Mat.Y (30 – 40) x 3 x 1 = - Rs.30 + for Mat.Z (20 – 10) x 4 x 1 = + Rs.40+ for Mat.Z (20 – 10) x 4 x 1 = + Rs.40 MUV = - Rs.10MUV = - Rs.10 MUV = MMSV + MYSV.MUV = MMSV + MYSV. - 10 = + 17 + MYSV i.e. MYSV = - Rs.27- 10 = + 17 + MYSV i.e. MYSV = - Rs.27
9. 9. 99 Material Yield Sub VarianceMaterial Yield Sub Variance MaterialsMaterials Std.Std. QuantityQuantity (A)(A) ActualActual QuantityQuantity (B)(B) StandardStandard PricePrice ( C)( C) TotalTotal Std. CostStd. Cost (AxC)(AxC) Mat.XMat.X 5050 6060 22 100100 Mat.YMat.Y 3030 4040 33 9090 Mat.ZMat.Z 2020 1010 44 8080 TotalTotal 100100 110110 2.702.70 270270
10. 10. 1010 Material Yield Sub VarianceMaterial Yield Sub Variance The Weighted Average Standard Price ofThe Weighted Average Standard Price of Material is Rs 2.70 & Standard Quantity isMaterial is Rs 2.70 & Standard Quantity is 100 Kgs.100 Kgs. MYSV = (SQ – AQ) x SP (wtd Avg.)MYSV = (SQ – AQ) x SP (wtd Avg.) = (100 – 110) x 2.70= (100 – 110) x 2.70 = - Rs.27= - Rs.27 MUV = MMSV + MYSVMUV = MMSV + MYSV - 10 = +17 + ( -) 27- 10 = +17 + ( -) 27
11. 11. 1111 Labor Cost VarianceLabor Cost Variance Labor Cost Variance (LCV) is the differenceLabor Cost Variance (LCV) is the difference between The Total Standard Labor Costsbetween The Total Standard Labor Costs (TSLC) and The Total Actual Labor Cost(TSLC) and The Total Actual Labor Cost (TALC).(TALC). LCV = (SH x SR x AO) – (AH x AR x AO)LCV = (SH x SR x AO) – (AH x AR x AO) LCV = TSLC – TALCLCV = TSLC – TALC SH = Standard Labor hours per unitSH = Standard Labor hours per unit SR = Standard Rate of Labor per hourSR = Standard Rate of Labor per hour AO = Actual OutputAO = Actual Output AH = Actual Labor hours per unitAH = Actual Labor hours per unit AR = Actual Rate of Labor per hourAR = Actual Rate of Labor per hour
12. 12. 1212 Labor Cost VarianceLabor Cost Variance Labor CostsLabor Costs StandardsStandards ActualActual Labor Hours Usage per UnitLabor Hours Usage per Unit 22 2.22.2 Labor Rate per HourLabor Rate per Hour 1414 1515 Actual Units ProducedActual Units Produced 100100 LCV = (SH x SR x AO)-(AH x AR x AO)LCV = (SH x SR x AO)-(AH x AR x AO) LCV = (2 x 14 x 100) – (2.2 x 15 x 100)LCV = (2 x 14 x 100) – (2.2 x 15 x 100) LCV = Rs.2800 – Rs. 3300 = - Rs.500LCV = Rs.2800 – Rs. 3300 = - Rs.500 Same Example as for MCV to show that the treatment is similar
13. 13. 1313 Labor Cost VariancesLabor Cost Variances Labor Cost Variance is due to Labor RateLabor Cost Variance is due to Labor Rate Variance (LRV) & Labor Efficiency VarianceVariance (LRV) & Labor Efficiency Variance (LEV)(LEV) LCV = LRV + LEVLCV = LRV + LEV LRV = (SR – AR) x AH x AOLRV = (SR – AR) x AH x AO = (14 – 15) x 2.2 x 100 = - Rs.220= (14 – 15) x 2.2 x 100 = - Rs.220 LEV = (SH – AH) xLEV = (SH – AH) x SRSR x AOx AO = (2 – 2.2) x 14 x 100 = - Rs.280= (2 – 2.2) x 14 x 100 = - Rs.280 LCV = - 220 + ( - ) 280 = - Rs.500LCV = - 220 + ( - ) 280 = - Rs.500
14. 14. 1414 Labor Efficiency VarianceLabor Efficiency Variance The Labor Efficiency Variance could (only ifThe Labor Efficiency Variance could (only if required) be further analyzed into Laborrequired) be further analyzed into Labor Mix Sub Variance (LMSV) & Labor YieldMix Sub Variance (LMSV) & Labor Yield Sub Variance (LYSV).Sub Variance (LYSV). LEV = LMSV + LYSVLEV = LMSV + LYSV Labor Mix Sub Variance is useful whenLabor Mix Sub Variance is useful when there is a possibility of changing the mix ofthere is a possibility of changing the mix of various class of laborers used in thevarious class of laborers used in the production of the final unit.production of the final unit.
15. 15. 1515 Labor Mix Sub Variance v/sLabor Mix Sub Variance v/s Labor Yield Sub VarianceLabor Yield Sub Variance LMSV =LMSV = (Standard Mix of Actual Labor Hours Worked –(Standard Mix of Actual Labor Hours Worked – Actual Mix of Actual Labor hours worked) xActual Mix of Actual Labor hours worked) x Standard Rate of each Class of Laborers.Standard Rate of each Class of Laborers. The Std Labor mix to make 1 drum of 100 KgThe Std Labor mix to make 1 drum of 100 Kg sauce issauce is 50 Hrs Lbr X @ 2.00 + 30 Hrs Lbr Y @ 3.00 +50 Hrs Lbr X @ 2.00 + 30 Hrs Lbr Y @ 3.00 + 20 Hrs Lbr Z @ 4.0020 Hrs Lbr Z @ 4.00 The Act. Labor used to make 1 drum of 100 KgThe Act. Labor used to make 1 drum of 100 Kg sauce is:sauce is: 60 Hr of Lbr X + 40 Hrs of Lbr Y + 10 Hrs of Lbr Z.60 Hr of Lbr X + 40 Hrs of Lbr Y + 10 Hrs of Lbr Z.
16. 16. 1616 Labor Mix Sub VarianceLabor Mix Sub Variance 1.1. Std Lbr Mix is 50 : 30 : 20 for 1 drum of 100Std Lbr Mix is 50 : 30 : 20 for 1 drum of 100 KgsKgs i.e. 5:3:2i.e. 5:3:2 2.2. Actual Labor hours worked is 110 hours. SoActual Labor hours worked is 110 hours. So Standard Lbr Mix for Actual Labor hoursStandard Lbr Mix for Actual Labor hours worked should have beenworked should have been 55:33:2255:33:22 1.1. LMSV =LMSV = 1.1. Lbr X = (55 – 60) x 2 = - Rs.10Lbr X = (55 – 60) x 2 = - Rs.10 2.2. Lbr Y = (33 – 40) x 3 = - Rs.21Lbr Y = (33 – 40) x 3 = - Rs.21 3.3. Lbr Z = (22 – 10) x 4 = + Rs.48Lbr Z = (22 – 10) x 4 = + Rs.48 Net LMSV = - Rs.10 – Rs.21 + Rs.48 = + Rs.17Net LMSV = - Rs.10 – Rs.21 + Rs.48 = + Rs.17
17. 17. 1717 Labor Yield Sub VarianceLabor Yield Sub Variance The LEV in this Case isThe LEV in this Case is LEV = (SH – AH) xLEV = (SH – AH) x SRSR x AOx AO Here AO = 1 as we are considering only OneHere AO = 1 as we are considering only One drum of saucedrum of sauce LEV = for Lbr X (50 – 60) x 2 x 1 = - Rs.20LEV = for Lbr X (50 – 60) x 2 x 1 = - Rs.20 + for Lbr.Y (30 – 40) x 3 x 1 = - Rs.30+ for Lbr.Y (30 – 40) x 3 x 1 = - Rs.30 + for Lbr.Z (20 – 10) x 4 x 1 = + Rs.40+ for Lbr.Z (20 – 10) x 4 x 1 = + Rs.40 LEV = - Rs.10LEV = - Rs.10 LEV = LMSV + LYSV.LEV = LMSV + LYSV. - 10 = + 17 + LYSV i.e. LYSV = - Rs.27- 10 = + 17 + LYSV i.e. LYSV = - Rs.27
18. 18. 1818 Labor Yield Sub VarianceLabor Yield Sub Variance LaborersLaborers Std.Std. Hours toHours to bebe WorkedWorked (A)(A) ActualActual HoursHours WorkedWorked (B)(B) StandardStandard Rate perRate per LaborLabor HourHour ( C)( C) TotalTotal Std.Std. LaborLabor CostCost (AxC)(AxC) Lbr XLbr X 5050 6060 22 100100 Lbr YLbr Y 3030 4040 33 9090 Lbr ZLbr Z 2020 1010 44 8080 TotalTotal 100100 110110 2.702.70 270270
19. 19. 1919 Labor Yield Sub VarianceLabor Yield Sub Variance The Weighted Average Standard Rate ofThe Weighted Average Standard Rate of Laborers is Rs 2.70 per hour & StandardLaborers is Rs 2.70 per hour & Standard Labor Hours to be worked is 100 Kgs.Labor Hours to be worked is 100 Kgs. LYSV = (SH – AH) x SR (wtd Avg.)LYSV = (SH – AH) x SR (wtd Avg.) = (100 – 110) x 2.70= (100 – 110) x 2.70 = - Rs.27= - Rs.27 LEV = LMSV + LYSVLEV = LMSV + LYSV - 10 = +17 + ( -) 27- 10 = +17 + ( -) 27
20. 20. 2020 Variable OverheadVariable Overhead Cost VariancesCost Variances  The Variable Overhead Cost VariancesThe Variable Overhead Cost Variances (VOCV) is similar in treatment to the(VOCV) is similar in treatment to the Material & Labor Cost Variances.Material & Labor Cost Variances.  It is the difference between the StandardIt is the difference between the Standard Variable Overhead Costs from the ActualVariable Overhead Costs from the Actual Variable Overhead Costs.Variable Overhead Costs.
21. 21. 2121 Variable OverheadVariable Overhead Cost VariancesCost Variances VOCV = (SVOC – AVOC ) x AOVOCV = (SVOC – AVOC ) x AO VOCV = TSVOC – TAVOCVOCV = TSVOC – TAVOC VOCV = VOEV + VOSVVOCV = VOEV + VOSV