Monday, February 22, 2010

Variance Analysis



A variance is the difference between an actual result and an expected result. The process by which the total difference between standard and actual results is analysed is known as variance analysis. When actual results are better than the expected results, we have a favourable variance (F). If, on the other hand, actual results are worse than expected results, we have an adverse (A).
I will use this example throughout this Exercise:
Standard cost of Product A
$
Materials (5kgs x $10 per kg)
50
Labour (4hrs x $5 per hr)
20
Variable o/hds (4 hrs x $2 per hr)     
  8
Fixed o/hds (4 hrs x $6 per hr)
24

102
Budgeted results   

Production:
1,200 units
Sales:
1,000 units
Selling price:
$150 per unit      
ACTUAL Results   

Production:
1,000 units
Sales:
900 units
Materials:
4,850 kgs, $46,075
Labour:
4,200 hrs, $21,210
Variable o/hds:
$9,450
Fixed o/hds:
$25,000
Selling price:
$140 per unit


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