Basic Variance Analysis

Question 1

Sales price variance

Answer 1

Difference between the standard price and the actual price at the actual quantity

Question 2

Sales volume variance

Answer 2

Difference between the budgeted volume and the actual volume at the standard sales price.

Valued at:
Standard profit per unit - absorption costing
Standard contribution per unit - marginal costing
Standard revenue per unit

Question 3

Total direct material variance

Answer 3

Difference between the standard direct material cost for actual production, and the actual direct material cost.

Question 4

Direct material price variance

Answer 4

(paying more or less than expected for materials)

Difference between the standard price and the actual price for the actual quantity.

Question 5

Direct material usage variance

Answer 5

(using more or less material than expected for actual output)
Difference between the standard material usage and the actual material usage for the actual production volume, valued at the standard material price.

Question 6

Total direct labour cost variance

Answer 6

(Overall change in amount spent on labour)

Difference between the standard direct labour cost for actual production and the actual cost of direct labour.

Question 7

Direct labour rate variance

Answer 7

(Paying more or less than expected per hour for direct labour)
Difference between the standard direct labour rate and the actual direct labour rate for the actual number of hours paid for.

Question 8

Direct labour efficiency variance

Answer 8

(Using more or less direct labour hours per unit than expected)

Difference between the standard number of direct labour hours for actual production, and the actual number of labour hours for the actual production valued at the standard direct labour rate per hour.

Note: direct labour efficiency variance is incurred during active hours only (exclude idle time)

Question 9

Direct labour idle time variance

Answer 9

Number of hours of idle time valued at the standard labour rate per hour.

Question 10

Variable production overhead total variance

Answer 10

Difference between standard variable production overhead cost of the actual production and the actual cost of variable production overheads.

Question 11

Variable production overhead expenditure variance

Answer 11

(Paying more or less per hour for the variable overheads)

Difference between what the variable production overhead should have cost for the number of hours worked, and what the variable production overhead did cost.

Note: variable production overhead is incurred during active hours only (exclude idle time)

Question 12

Variable production overhead efficiency variance

Answer 12

(Using more or less variable overhead per unit than expected)

Difference between the expected hours for the actual production and the actual hours for the actual production multiplied by the standard variable production overhead rate.

Note: variable production overhead is incurred during active hours only (exclude idle time)

Question 13

Fixed production overhead total variance

Answer 13

(The amount of fixed overhead absorbed for each unit of production)

Difference between the standard fixed production overhead absorbed by the actual production, and the actual fixed production overhead cost

Question 14

Fixed overhead expenditure variance

Answer 14

Difference between the budgeted fixed overhead and the actual fixed overhead

Question 15

Fixed overhead volume variance

Answer 15

Difference between the budgeted output in units and the actual output in units valued at the standard fixed overhead absorption rate per unit.

Note: the fixed overhead volume variance does not occur in a marginal costing system.

Note: the fixed overhead volume variance can be sub divided into the fixed overhead capacity variance and the fixed overhead efficiency variance.

Question 16

Fixed overhead capacity variance (if the FOAR used labour hours)

Answer 16

(Whether the workforce worked more or fewer hours than budgeted for the period.)
Actual hours times by FOAR per hour less budgeted labour expenditure

Question 17

Fixed production overhead efficiency variance

Answer 17

(Whether the workforce took more or less time than standard in producing their output for the period)

Difference between standard hours for actual production multiplied by the FOAR per hour, and the actual hours multiplied by the FOAR per hour.

Note: the fixed overhead capacity and efficiency variances combine to give the fixed production overhead volume variance.