 Accounting Basics Tutorial
 Accounting  Home
 Accounting  Overview
 Accounting  Process
 Accounting  Basic Concepts
 Accounting  Conventions
 Accounting  Accounts' Classification
 Accounting  Systems
 Financial Accounting
 Financial Accounting  Journal
 Financial Accounting  Ledger
 Financial Accounting  Books
 Financial Accounting  Depreciation
 Cost Accounting
 Cost Accounting  Introduction
 Cost Accounting  Advantages
 Cost Accounting  vs. Financial A/c
 Cost Accounting  Cost Classification
 Cost Accounting  Elements of Cost
 Cost Accounting  Cost Sheet
 Cost Accounting  Cost Control
 Cost Accounting  Cost Reduction
 Cost Accounting  Budgeting
 Cost Accounting Techniques
 Cost Accounting  Marginal Costing
 Cost Accounting  Standard Costing
 Cost Accounting  Variance Analysis
 Cost Accounting  CVP Analysis
 Management Accounting
 Management A/c  Introduction
 Management A/c  vs. Cost A/c
 Management A/c  vs. Financial A/c
 Management A/c  Cash Flow
 Management A/c  Ratio Analysis
 Management A/c  Useful Ratios
 Management A/c  Working Capital
 Accounting Useful Resources
 Accounting Basics  Quick Guide
 Accounting Basics  Useful Resources
 Selected Reading
 UPSC IAS Exams Notes
 Developer's Best Practices
 Questions and Answers
 Effective Resume Writing
 HR Interview Questions
 Computer Glossary
 Who is Who
Cost Accounting  Variance Analysis
When the actual cost differs from the standard cost, it is called variance. If the actual cost is less than the standard cost or the actual profit is higher than the standard profit, it is called favorable variance. On the contrary, if the actual cost is higher than the standard cost or profit is low, then it is called adverse variance.
Each element of cost and sales requires variance analysis. Variance is classified as follows:
 Direct Material Variance
 Direct Labor Variance
 Overhead Variance
 Sales Variance
Direct Material Variance
Material variances can be of the following categories:
 Material Cost Variance
 Material Price Variance
 Material Usage Variance
 Material Mix Variance
 Material Yield Variance
Material Cost Variance  
Standard cost of materials for actual output – Actual cost of material used Or Material price variance + Material usage or quantity variance Or Material price variance + Material mix variance + Material yield variance 

Material Price Variance  
Actual usage ( Standard Quantity Price – Actual Unit Price) Actual Usage = Actual Quantity of material (in units) used Standard Unit Price = Standard Price of material per unit Actual Unit Price = Actual price of material per unit 

Material Usage or Quantity Variance  
Material usage or Quantity variance : Standard price per unit (Standard Quantity – Actual Quantity ) 

Material Mix Variance  
Material mix variance arises due to the difference between the standard mixture of material and the actual mixture of Material mix. Material Mix variance is calculated as a difference between the standard prices of standard mix and the standard price of actual mix. If there is no difference between the standard and the actual weight of mix, then: Standard unit cost (Standard Quantity – Actual Quantity ) Or Standard Cost of Standard Mix – Standard cost of Actual Mix Sometimes due to shortage of a particular type of material, standard is revised; then: Standard unit cost (Revised Standard Quantity – Actual Quantity) Or Standard cost of revised Standard Mix – Standard Cost of Actual mix If the actual weight of mix differs from the standard weight of mix, then:
Standard cost of revised standard mix ×
Total weight of actual mix
mixTotal weight of revised standard mix


Material Yield Variance  
When the standard and the actual mix do not differ, then Yield Variance = Standard Rate × (Actual Yield – Standard Yield)
Standard Rate =
Standard cost of standard mix
Net standard output (i.e.Gross output−Standard loss)

Direct Labor Variance
Direct labor variances are categorized as follows:
 Labor Cost Variance
 Labor Rate of Pay Variance
 Total Labor Efficiency Variance
 Labor Efficiency Variance
 Labor Idle Time Variance
 Labor Mix Variance or Gang Composition Variance
 Labor Yield Variance or Labor Efficiency Sub Variance
 Substitution Variance
Labor Cost Variance 
Standard Cost of Labor – Actual Cost of Labor 
Labor Rate of pay Variance 
Actual Time taken × (Standard Rate – Actual Rate) 
Total Labor Efficiency Variance 
Standard rate × (Standard time – Actual time) 
Labor Efficiency Variance 
Standard Rate (Standard time for actual output – Actual time worked) 
Labor Idle Time Variance 
Idle Time Variance = Abnormal Idle Time × Standard Rate Total Labor Cost Variance = Labor rate of Pay variance + Total labor Efficiency Variance Total Labor Efficiency Variance = Labor Efficiency Variance + Labor Idle Time Variance 
Labor Mix Variance or Gang Composition Variance 
If actual composition of labor is equal to standard: LMV = Standard Cost of Standard Composition (for Actual time taken) – Standard Cost of Actual Composition (for Actual time worked) If standard composition of labor revised due to shortage of any specific type of labor but the total actual time is equal to the total standard time: LMV = Standard Cost of Revised Standard Composition (for Actual Time Taken) – Standard Cost of Actual Composition (for Actual Time Worked) If actual and standard time of labor differs:
=
Total time of actual labor composition
Total time of standard labor composition
× Std.cost of std.composition − Std.cost of actual composition
In case the Standard is revised and there is a difference in the total Actual and the Standard time:
=
Total time of actual labor composition
Total time of revised std.labor composition
× Std.cost of (revised std.composition − actual composition)

Labor Yield Variance 
Std. Labor Cost per unit × (Actual Yield In units – Std. Yield in units expected from Actual time worked on production) 
Substitution Variance 
(Actual hrs × Std. Rate of Std. Worker) – (Actual hrs × Std.Rate actual worker) 