Variance Analysis Flashcards
What is a variance?
The difference between the actual results and the budget or standard.
To ensure I like for like comparison, most variances compare actual results to a flexed budget
What is a sales price variance and why would it occur?
This is the price we sold our products for versus what we expected
If it’s more than expected, it’s favourable
If it’s less than expected, it’s adverse
Favourable causes
-Lower than expected discounts
- Market conditions
- Increased product quality or design
Adverse causes
-Higher discounts offered
- Low price offers during a marketing campaign
- Market conditions
- Poor product quality or design
What is a sales volume variance and why would it occur?
How many units we expected to sell how many were sold?
More than expected would be favourable
Less than expected would be adverse
Causes
- Successful or unsuccessful market effort
-Changes in customer needs
- Production difficulties
- Changes in selling price
-Nature of competition
What is a materials price variance and what would cause it?
How much we paid for materials for what we expected to pay
More would be adverse
Less would be favourable
Favourable causes
- Bulk discount
- Efficient buying procedures
- Different supplier
Adverse causes
- Increase in the prices charged by supplier
- Market shortages of material
- Unexpected buying cause such as high delivery charges
- Inefficient buying procedures
What is a materials usage variance and what would cause it?
How much material used to create actual output versus what we should’ve used
More Would be adverse
Less Would be favourable
Potential causes
- Change the rate of scrap or wastage
- Quality of material
- Better or worse quality control
- Work procedures
- changes to production methods e.g. experience of staff
What is a labour rate variance and what would cause it?
How much we paid our staff versus what was expected
More would be adverse
Less would be favourable
Potential causes
- Increase in basic rates of pay
- Payment of bonuses
- Labour shortages
- Unexpected overtime
What is a labour efficiency variance and what would cause it?
How long it took us staff to make actual output versus how long it should’ve taken
More would be adverse
Less would be favourable
Potential causes
- Changes in labour motivation
- Changes to the labour mix e.g. skilled versus unskilled
- Working method
- Industrial action by workforce
- Poor supervision
What is the labour idle time variance and what would cause it?
Paid for staff unable to work
This can only be adverse
Potential causes
- Une bottlenecks and resourced shortages
- Machine breakdowns
- Strike action
- Lack of sales
- Machine set up
- Seasonal demand
- Sick pay
What is a variable overhead rate expenditure variance and what would cause it?
How much variable overhead we paid versus expected
More would be adverse
Less would be favourable
Potential causes
- Changes in machine running costs e.g. electricity rates have changed
What is a variable overhead efficiency variance and what would cause it?
How much we should’ve worked make actual output
Potential causes
- Same as labour efficiency
- Supervision
- Industrial action
- Working methods
What is a fixed overhead expenditure variance and what causes it?
How much fixed overhead cost what we expected it to
More would be adverse
Less would be favourable
Potential causes
- Spending more or less than the budget
What is a fixed overhead fully and variance and what would cause it?
Potential causes
- Look for reasons why we made more or less than expected
- Likely to be the same as for the sales volume variance
- Could be deliberate changes in inventory policies
- Only relevant for absorption costing
What is Fixed overhead capacity, variance and what causes it?
This looks at utilisation. How many hours staff worked versus was expected to work?
Potential causes
- Few hours maybe due to staff sickness machine breakdowns and other bottlenecks
What is a fixed overhead efficiency variance and what causes it?
How long staff take to make actual output how long it should’ve taken?
More would be adverse
Less would be favourable
Potential causes
- Labour motivation
- Poor supervision
- The learning effect
- Labour mix
What is the sales mix and quantity variances and how would this be caused?
The sales volume variance can be broken down into two:
- The sales mix variance
- The sales quantity variance

The sales mix variance
- Has the profit changed because of the relative proportion of each product sold?
The sales quantity variance
- Has the profit changed because the organisation has sold more or less products overall
