Variances are worked out for the quantity and price of materials or labour and then reported; however, not all variances can be considered important. Only those that are especially significant or unusual are relevant, yet by analysing those variances, companies determine where the problems lie to rectify them and improve the company’s performance overall.
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Variance analysis can be quite complex to understand. It refers to the analysis of the difference between the actual numbers and those planned. The sum of variances can give you information about the underapplied or over applied values during your company’s reporting period.
Function For Variance Analysis
Companies often choose to determine the favourable individual variances by comparing the standard costs and the actual costs and then applying logic. If the standard price is higher than the actual price for materials, for example, this would be a favourable price variance, however, should the standard quantity be lower than the amount actually used, the quantity variance would actually be unfavourable since the materials used were more than the amount anticipated.
There are both fixed and variable overheads :
- Variable overheads include materials and labour – the price and rate variance and the quantity and efficiency variance.
- Fixed overheads – the budget variance and the volume variance
Needless to say, working out your fixed and variable overheads and calculating your variance analysis can be a challenging task. It can take you away from the more important elements of your business’s day to day running. The Accountancy Solutions can handle your variance analysis for you to be sure of an accurate way of finding where any problems are with your company to determine how performance can be improved.
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