Page 141 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Cost and Management Accounting

Notes 7.3 Summary

There are two type of variances viz. cost variance and revenue variance.

Cost variance can be further classified into three categories: (a) Material Cost Variance,
(b) Labour Cost Variance, (c) Overhead Variance.
Revenue Variance includes Sales Variance.
The material cost variance is in between the standard material cost for actual production
in units and actual cost.
Material price variance is a variance in between two different prices viz. the standard price
and actual price of raw materials.
Materials Usage Variance = Standard Price × (Standard quantity of materials for actual
output – Actual quantity of materials used)

Material Sub-usage Variance = Standard Cost per unit (Standard Quantity – Revised
Standard Quantity).

Material yield variance is one of the components of the material usage variance which
arises only due to the deviation in between the standard yield determined and the actual
yield accrued.
Labour Variance Analysis, is studying the deviation in between the actual cost of the labour
incurred and standard/budgeted cost of the labour.

The overhead variance is defined is as the variance in between standard cost of overhead
estimated for the actual output and actual cost of overhead really incurred.

Sales variances is the only component accompanied the profit volume variance of the
business transaction. The sales variances are computed and analysed in order to study the
effect of sales value and facilitates the sales manager to easily understand the various sales
efforts taken by the team.

7.4 Keywords

Cost variance: Identifying the deviations in between the actual cost and standard cost which was
already determined.
Favourable Cost Variance: It is due to greater standard cost over the actual cost.
Favourable Revenue Variance: It is due to greater actual revenue than the standards.

Revenue Variance: Identifying the deviations in between the actual revenue and early determined
standard revenue.

Standard: It is a predetermined or estimate figure calculated by considering the ideal conditions
of the work environment.
Unfavourable Cost Variance: It is due to greater actual cost than the determined standard cost.
Unfavourable Revenue Variance: It is an outcome due to greater standard sales than the actual
sales.

Variance: It is tool of standard costing in determining the deviations of the enterprise from the
early estimates.

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