Page 248 - DMGT403_ACCOUNTING_FOR_MANAGERS

Unit 11: Variance Analysis

Notes
EDI connectivity miss the central point that high cost has arisen on account of infrastructural
disabilities such as cost and supply of power, port handling charges, transportation charges
and unrebated state levies. The minor tinkering in the FTP will not impart any major
gains to India’s export competitiveness.

Considering the excellent export performance of competing countries such as Bangladesh,
Vietnam and China and the stimulus package offered by these countries, the poor
performance of Indian textile export sector cannot be attributed to only the recessionary
pressures in global markets. To revive India’s competitive advantages and enhance its
market share even in a situation of falling demand, we will have to match the extensive
support provided by competing countries.

Source: theeconomictimes.com

11.6 Summary

The purpose of standard costing is to correct the variance, which is in between standard
cost and actual cost.
There are two type of variances viz. cost variance and revenue variance.
Cost variance can be further classified into three categories: (a) Material Cost Variancem,
(b) Labour Cost Variance, (c) Overhead Variance,
Revenue Variance: Sales Variance.

11.7 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.

11.8 Self Assessment

Choose the appropriate answer:
1. Variance is identified in between
(a) Standard and budgeted figures (b) Standard and actual figures

(c) Budgeted figures and actual (d) None of the above

LOVELY PROFESSIONAL UNIVERSITY 243