Variance analysis can be used to control costs by identifying and determining the cause of differences between expected and actual costs. It calculates cost variances, investigates reasons for variances, reports this information to management, and takes corrective action. Key elements of variance analysis include purchase price, labor rate, variable and fixed overhead spending, selling price, material yield, labor efficiency, and variable overhead efficiency variances. Variance analysis uses formulas to calculate the difference between budgeted and incurred costs.
Variance analysis can be used to control costs by identifying and determining the cause of differences between expected and actual costs. It calculates cost variances, investigates reasons for variances, reports this information to management, and takes corrective action. Key elements of variance analysis include purchase price, labor rate, variable and fixed overhead spending, selling price, material yield, labor efficiency, and variable overhead efficiency variances. Variance analysis uses formulas to calculate the difference between budgeted and incurred costs.
Variance analysis can be used to control costs by identifying and determining the cause of differences between expected and actual costs. It calculates cost variances, investigates reasons for variances, reports this information to management, and takes corrective action. Key elements of variance analysis include purchase price, labor rate, variable and fixed overhead spending, selling price, material yield, labor efficiency, and variable overhead efficiency variances. Variance analysis uses formulas to calculate the difference between budgeted and incurred costs.
CONTROL COST CONTROL ALGIE C. DAG-UMAN How can variance analysis be used to control costs?
Variance analysis can be used to
control costs it involves assessing the difference between two figures. It is a tool applied to financial and operational data that aims to identify and determine the cause of the variance. Variance Analysis identify and determine the ff:
1.It Calculates the difference between an
incurred cost and an expected cost. 2.It investigates the reasons for the difference. 3. It reports this information to management. 4.It takes corrective action to bring the incurred cost into closer alignment with the expected cost. Elements of Variance Analysis
Purchase price variance. The actual price paid
for materials used in the production process, minus the standard cost, multiplied by the number of units used. Ex PPV = AP – (SC x No. of Units) Labor rate variance. The actual price paid for the direct labor used in the production process, minus its standard cost, multiplied by the number of units used. Elements of Variance Analysis
Variable overhead spending variance. Subtract
the standard variable overhead cost per unit from the actual cost incurred and multiply the remainder by the total unit quantity of output. Ex. VOSV = (AC – SVOC) (TUQO) Fixed overhead spending variance. The total amount by which fixed overhead costs exceed their total standard cost for the reporting period. Ex. FOSV = FO – SCFO) Elements of Variance Analysis
Selling price variance. The actual selling price, minus
the standard selling price, multiplied by the number of units sold. Ex. SPV = ACSP – (SSP x No. of Unit) Material yield variance. Subtract the total standard quantity of materials that are supposed to be used from the actual level of use and multiply the remainder by the standard price per unit. Ex. MYV = (TSQM – ALU) x SPU Elements of Variance Analysis
Labor efficiency variance. Subtract the standard
quantity of labor consumed from the actual amount and multiply the remainder by the standard labor rate per hour. Ex. LEV = (AM – SQLC) - SLRPH Variable overhead efficiency variance. Subtract the budgeted units of activity on which the variable overhead is charged from the actual units of activity, multiplied by the standard variable overhead cost per unit. Ex. VOEV = (BUA – AUA) x SVOCPU SIMPLE VARIANCE ANALYSIS FORMULA