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Basic Costing: Variance Q

gizmoogizmoo New MemberRegistered Posts: 13
This is probably a silly question but in basic costing when you are calculating the variance do you simply take the higher number from the lower and put the difference down?

I'm just revising before start my day and been working all night so brains little tired to think for itself!

Thanks in advance for replies :)

Comments

  • coojeecoojee Experienced Mentor Registered Posts: 794
    gizmoo wrote: »
    This is probably a silly question but in basic costing when you are calculating the variance do you simply take the higher number from the lower and put the difference down?

    I'm just revising before start my day and been working all night so brains little tired to think for itself!

    Thanks in advance for replies :)

    It's not quite that simple as you have to do it in the correct order so that you get the + or - sign the right way round. If you're looking at sales, if they go up this a good thing so it's a + variance and if they go down it's bad so it's a - variance. This applies to all income streams. On the other hand if purchases or expenses go up this a bad thing so it's a - variance and if they go down it's a good thing so it's a + variance. Example:
    Sales 2011 10,000
    Sales 2012 12,500
    Sales have gone up so it's a + variance of 2,500
    Purchases 2011 6,000
    Purchases 2012 7,500
    Purchases have gone up so it's a - variance of 1,500
    If you simply took the lower number from the higher number each time you would get the signs wrong (as they'd all be +) and if you did 2012 less 2011 you would also get the signs wrong (sales would be right as a + variance but purchases would be wrong as they'd be shown as + when they should be -)

    Hope this helps :-)
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