HELP!!!! Labour and material variences

jojo1979

Hi all!

Was just wondering if anyone could help me with an easy way of remembering these as i have tried and tried and tried but just cannot get my head around them :-(

J

lisalofty

Our tutor has given us a template it goes as follows; Hope it helps

Variances(tip think of standard as Flexed)

MATERIALS

Total Materials Variance = Standard Cost less Actual Cost or SC-AC

Materials Price Variance = (Standard Price less Actual Price) x Actual Quantity or (SP-AP) x AQ

Materials Usage = (Standard Quantity less Actual Quantity) x Standard Price or (SQ-AQ) x SP

LABOUR

Total Labour Variance = Standard Cost less Actual Cost or SC-AC

Labour Rate Variance = (Standard Rate less Actual Rate) x Actual Hours or (SR-AR) X AH

Labour Efficiency Variance = (Standard Hours less Actual Hours) x Standard Rate or (SH-AH) X SR

NicF

I find it helps to think about what it is you are actually looking at. So the total variances are just the flexed budgets cost minus the actual cost. Splitting this down for the price variances you want to know what the difference is between the budgeted price and the actual price paid for labour or materials you have actually used. For efficiency you are looking at the difference between the number of budgeted hours/kgs and the actual number of hours worked or kgs used. You have to put a price on these though so you multiply the answer by the standard (budgeted) cost.

Nicola

siva

I was in your situation when i first started now i feel like i have mastered the variances.

I would say dont look at the the formulas which would look like is easier to remember when you read them but after you turn few pages away you will start to think about the formulae again, it didn't work for me.

Just abserve the concept. You have budgeted some price and some quantities and when the actual situation arises you are just comparing what has cost with what should have cost.

Price variance - difference between prices( unit prices) and multiply by actual quantity - to see if we paid more or less than budget price.

Effieciency Variance - difference between quantities used for actual production and multiply by Budgeted unit cost - to see if we used more or less quantities than budget.

Same principle applies for Labour.

I hope this helps.

jojo1979

Thank you guys i think i have cracked it now. she says hopefully x