Pev ( k& u)

Variances and Performance Indicators

Variances :

Direct Material Variance- this shows the difference between the standard cost of material and the actual cost of material for actual production. This can be analysed into the two variances below.

Direct Material Price Variance - amount of the cost difference due to the pice of material. Favourable = cost of materials is cheaper than budgeted for. (may be due to bulk buy, cheaper supplier etc) Adverse= cost of materials is dearer than budgeted for. (may be due to better quality etc)

Direct Material Usage Variance - amount of the cost difference due to the amount of material used. Favourable = used less material than budgeted for.
Adverse= used more material than budgeted for. (may be due to rubbish quality etc)

Direct Labour Variance- this shows the difference between the standard cost of actual labour hours used and the actual cost of actual labour hours used for actual production. This can be analysed into the two variances below.

Direct Labour Rate Variance - amount of the cost difference due to the pice of labour hour. Favourable = rate per hour was lower than budgeted (cheaper unskilled workforce) Adverse= rate per hour was higher than budgeted (super skilled workforce/ sub-contractors or overtime payments)


Direct Labour Efficiency Variance -amount of the cost difference due to the amount of
labour hours used. Favourable = used less labour hours than budgeted for.
Adverse= used more labour hours than budgeted for.

Fixed Overhead Expenditure Variance

This variance shows whether actual spending on fixed overheads was more than budgeted if adverse or less than budgeted if favourable. Reasons for variance could include poor budgeting or that actual costs are different due to unforseen price changes. Because these overheads are "fixed" it cannot be due to different output.

Fixed Overhead Volume Variance-, this shows the difference between the overheads that would be absorbed by the planned volume of output and the amoun absorbed by the actual output. The breakdown of this variance into Efficiency and capacity explains why there had been higher or lower output than he budget forecast.

Fixed Overhead Efficiency Variance - this variance shows how the efficient use of resources effects the volume of output. Favourable = output has been created using less resources than had been expected.

Fixed Overhead Capacity Variance- this variance shows how the amount of esources used compared with the budget affecs the volume of output. Favourable = more resources have been used therefore spreading the fixed overhead costs more widely



Hope this explains variances!!! :thumbup:

Thank you 111Beckstar111 that is brilliant and a great help.

Lou 123:thumbup1:

wow spot on there !!!! thats great help !!

Task 1.1 e sorry!

No probs everyone! :001_smile: