Variance analysis quantifies the difference between actual and planned performance. It is used to maintain control over a business. Major cost variances include: 1. Direct material price and quantity variances which measure the difference between actual and standard material costs. 2. Direct labor rate and efficiency variances which compare actual labor hours and rates to standards. 3. Variable overhead spending and efficiency variances which show the difference between actual and standard variable overhead costs. 4. Fixed overhead variance compares actual fixed overhead to the budgeted amount.

1. VARIANCE ANALYSIS USING
STANDARD VARIABLE COSTING
Variance analysis is the quantitative
investigation of the difference between
actual and planned behavior. This
analysis is used to maintain control over
a business. For example, if you budget
for sales to be Php.10,000 and actual
sales are Php.8,000, variance analysis
yields a difference of Php.2,000.

2. Major Classification of
Manufacturing Costs:
Primary Considerations:
Direct Materials •Material’s Price and Quantity
produced
Direct Labor •Labor Cost and Hours Incurred
Manufacturing Overhead – Variable •Total Variable Cost Incurred and
Total Budgeted Variable Cost
Manufacturing Overhead - Fixed •Periodic Budgeted Cost and Actual
Periodic Cost

3. DIRECT MATERIALS
DM MATERIALS PRICEVARIANCE DM EFFICIENCYVARIANCE
Same Difference
Actual Quantity
purchased
Actual Price vs.
Standard Price
Same Difference
Standard Price
Actual Quantity
purchased vs.
Standard Quantity

4. DIRECT LABOR
DL MATERIALS RATEVARIANCE DL EFFICIENCYVARIANCE
Same Difference
Actual Hours Used Actual Hour rate
vs. Standard Hour
rate
Same Difference
Standard Hour
Rate
Actual Hours Used
vs. Standard
(Planned) hours
to complete a task

5. VARIABLE OVERHEAD
VARIABLE
OVERHEADSPENDING
VARIANCE
VARIABLE OVERHEAD
EFFICIENCYVARIANCE
Same Difference
Actual variable
materials
purchased or
Actual hours used
Total Actual
variable cost
incurred vs.
Standard Variable
cost
Same Difference
Standard Price of
Materials or Rate
of Labor hour
Total Actual Fixed
mat. Purchased or
hour used vs.
Standard fixed
mat. Purchased or
hour used

6. FIXED OVERHEAD PRICE VARIANCE
Same Difference
None Total Actual Fixed OH
incurred vs. Budgeted Fixed
OH

7. TECHNIQUES:
1. HOW TO DETERMINE IF VARIANCE IS F/U?
2. IN THE FORMULA THERE ARE SAME TERMS WHICH ARE:
3. ALWAYS LOOK FOR THE FF. GIVEN DATA:
• Budgeted Qty. of Sales and its Budgeted Sales Price
• Actual quantity produced and its Actual Selling Price
• ALL Total and Standard Variable and Fixed Costs and Quantity
DM Efficiency Price
DL Efficiency Rate
MOH Efficiency Price (Spending)
Price ( A>S=U) (A<S=F)
Efficiency ( A<S=U) (A>S=F)