Scribd
Upload
6 views

_Variance

The document outlines formulas for calculating variances in materials, labor, and overhead costs, including price, quantity, rate, and efficiency variances. It provides specific examples with calculations demonstrating how to determine favorable and unfavorable variances based on actual and standard costs. A summary table at the end lists the variances and their respective amounts and classifications.

Uploaded by

Nsakib
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
6 views

_Variance

The document outlines formulas for calculating variances in materials, labor, and overhead costs, including price, quantity, rate, and efficiency variances. It provides specific examples with calculations demonstrating how to determine favorable and unfavorable variances based on actual and standard costs. A summary table at the end lists the variances and their respective amounts and classifications.

Uploaded by

Nsakib
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 4

Materials Variance:

Price Variance Formula:

Price Variance = AQ × (AP - SP)

AQ = Actual Quantity AP = Actual Price per unit SP = Standard Price per


unit

Quantity Variance Formula:

Quantity Variance = SP × (AQ - SQ)

SQ = Standard Quantity allowed for actual output.

Labor Variance:

Rate Variance Formula:

Rate Variance = AH × (AR - SR)

AH = Actual Hours AR = Actual Rate per hour SR = Standard Rate per hour

Efficiency Variance Formula:

Efficiency Variance = SR × (AH - SH)

SH = Standard Hours allowed for actual output.

Overhead Variance:

Rate and Efficiency Variances are computed similarly to labor but use
overhead rates.

Let’s Walk Through an Example:

1. Materials Price Variance:

Given: AQ = 12,000 yards AP = $3.80 SP = $4.00

Substitute values: Price Variance = 12,000 × (3.80 - 4.00) Price Variance =


12,000 × (-0.20) Price Variance = -2,400 (Favorable)
2. Materials Quantity Variance:

Given: SP = $4.00 AQ = 12,000 yards SQ = 11,200 yards

Substitute values: Quantity Variance = 4.00 × (12,000 - 11,200) Quantity


Variance = 4.00 × 800 Quantity Variance = 3,200 (Unfavorable)

Labor and Overhead Variances Explained

Labor Variances

Given Data:

● Actual Hours (AH): 2,800 hours


● Actual Rate (AR): $6.50/hour
● Standard Rate (SR): $6.00/hour
● Standard Hours (SH): 3,000 hours

1. Labor Rate Variance (LRV):

Formula:

Rate Variance=AH×(AR−SR)\text{Rate Variance} = \text{AH} \times (\text{AR} - \text{SR})

Substitute the values:

Rate Variance=2,800×(6.50−6.00)\text{Rate Variance} = 2,800 \times (6.50 - 6.00) Rate


Variance=2,800×0.50=1,400 (Unfavorable)\text{Rate Variance} = 2,800 \times 0.50 = 1,400 \
(\text{Unfavorable})

Explanation:

● The rate variance is unfavorable because the actual rate ($6.50/hour) is higher than the
standard rate ($6.00/hour), increasing costs.

2. Labor Efficiency Variance (LEV):

Formula:
Efficiency Variance=SR×(AH−SH)\text{Efficiency Variance} = \text{SR} \times (\text{AH} -
\text{SH})

Substitute the values:

Efficiency Variance=6.00×(2,800−3,000)\text{Efficiency Variance} = 6.00 \times (2,800 - 3,000)


Efficiency Variance=6.00×(−200)=−1,200 (Favorable)\text{Efficiency Variance} = 6.00 \times
(-200) = -1,200 \ (\text{Favorable})

Explanation:

● The efficiency variance is favorable because the actual hours (2,800) are less than the
standard hours (3,000), meaning the labor was more efficient than expected.

Overhead Variances

Given Data:

● Actual Hours (AH): 2,800 hours


● Actual Overhead Rate (AR): $2.50/hour
● Standard Overhead Rate (SR): $2.40/hour
● Standard Hours (SH): 3,000 hours

1. Overhead Rate Variance (ORV):

Formula:

Rate Variance=AH×(AR−SR)\text{Rate Variance} = \text{AH} \times (\text{AR} - \text{SR})

Substitute the values:

Rate Variance=2,800×(2.50−2.40)\text{Rate Variance} = 2,800 \times (2.50 - 2.40) Rate


Variance=2,800×0.10=280 (Unfavorable)\text{Rate Variance} = 2,800 \times 0.10 = 280 \
(\text{Unfavorable})

Explanation:

● The rate variance is unfavorable because the actual overhead rate ($2.50/hour) is higher
than the standard rate ($2.40/hour).

2. Overhead Efficiency Variance (OEV):


Formula:

Efficiency Variance=SR×(AH−SH)\text{Efficiency Variance} = \text{SR} \times (\text{AH} -


\text{SH})

Substitute the values:

Efficiency Variance=2.40×(2,800−3,000)\text{Efficiency Variance} = 2.40 \times (2,800 - 3,000)


Efficiency Variance=2.40×(−200)=−480 (Favorable)\text{Efficiency Variance} = 2.40 \times
(-200) = -480 \ (\text{Favorable})

Explanation:

● The efficiency variance is favorable because the actual hours (2,800) are less than the
standard hours (3,000), reducing overhead costs.

Summary of Variances:
Variance Type Amount Favorable/Unfavorable

Labor Rate Variance $1,400 Unfavorable

Labor Efficiency Variance $1,200 Favorable

Overhead Rate Variance $280 Unfavorable

Overhead Efficiency Variance $480 Favorable

You might also like