VARIANCE ANALYSIS
Variance analysis can be quite complex to understand. It refers to analysis of the difference between the actual numbers and those which were planned. The sum of variances can give you information about the under applied or over applied values during your company’s reporting period.
FUNCTIONS AND TYPES OF VARIANCE ANALYSIS
Companies often choose to determine the favorable of 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 favorable price variance, however should the standard quantity be lower than the amount actually used, the quantity variance would actually be unfavorable 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, and can take you away from the more important elements of the day to day running of your business. The Accountancy Solutions can handle your variance analysis for you so that you can be sure of an accurate way of finding where any problems are with your company in order to determine how performance can be improved.
Advice for Variance Analysis
Variances are worked out for the quantity and price of materials or labour and then reported, however not all variances can be considered to be important. Only those which are especially significant or unusual are relevant, yet by analysing those variances, companies to determine where the problems lie in order to rectify them and to improve the performance of the company overall.