Variance analysis is the difference between the planned or standard cost and actual cost which is occur in the present time period. It will quantify both revenue and expense. (wikipedia, 2018)
It may be the firm strategy that estimated cost that occur incoming financial period. That may be who much cost or expense occur and what profit we will earn. But when the firm implement the strategy that all thing not going to the plan and some difference come to his planned because of changing of environment and other things.
Tools of Variance Analysis
There are difference tools use to the variance analysis.
Direct Material Analysis
In direct material analysis the firm see that what we set the standard price to purchase and usage the material and the what the actual price of material purchase and use.
In direct material there are two types.
Direct Material Price Variance
Here “the difference between the actual cost which is occur to purchase a goods or material and standard cost which we estimate”. (Accounting- simplified.com, 2017)
Direct Material Usage Variance
Here “The difference between the actual Quantity and standard quantity by multiply of standard price”. (Accounting- simplified.com, 2017)
Direct Labor Variance
There are two types of direct labor Variance.
Direct Labor Rate Variance
Here “The difference between the actual cost and the standard rate of actual hours for the good output”. (Accounting Coach, 2004) (Accounting- simplified.com, 2017)
Direct Labor Efficiency Variance
The difference between actual time incurred to manufacture a certain number of units and the time allowed by standards to manufacture that number of units multiplied by standard direct labor rate is called direct labor efficiency variance. (Accountingformanagement.org, 2012)
FOH Variance Analysis
FOH variance analysis is divide into different part.
FOH Controllable Variance
Here “the difference between the actual factory overhead and budget allowance based on standard hours allowed” (Roja, 2018).
FOH Volume Variance
Here “The difference between budgeted allowance based on standard hours allowed and factory overhead applied or charged to production” (Roja, 2018).
FOH Spending Variance
Here “The difference between actual factory overhead and budgeted allowance based on actual hours worked” (Roja, 2018).
FOH Idle Capacity Variance
Here “The actual hours worked multiply by standard overhead rate then the answer mins to budgeted allowance based in actual hours worked” (Roja, 2018)
1. The manager to manage the actual budget and planed budget of the project. (Jennifer, 2018)
2. Variance Analysis is help for taking a corrective decision. (Usage o variance analysis is well variable, 2018)
3. It is also analysis the risk that what is controllable variable and what is uncontrollable factor. (Usage o variance analysis is well variable, 2018)
4. It is help for minimize the wastage and detect the variance or take the corrective action. (shriram, 2014)
5. It is simplified the cost control procedure. (shriram, 2014)