efficiency
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Wildcat Pizza, Inc. produces batches of frozen pizzas to sell at a variety of grocery stores throughout the country.
| Direct materials | $60.00 |
| Direct labor | 40.00 |
| Variable |
30.00 |
| Total | $130.00 |
Wildcat produced and sold 100,000 batches for the year and encountered the following production variances:
| Direct materials price variance | (300,000) | Favorable |
| Direct materials quantity variance | 290,000 | Unfavorable |
| Direct labor rate variance | (170,000) | Favorable |
| Direct labor efficiency variance | (140,000) | Favorable |
| Variable overhead spending variance | 150,000 | Unfavorable |
| Variable overhead efficiency variance | (210,000) | Favorable |
| Total variable production cost variance | (380,000) | Favorable |
Company policy is to investigate all unfavorable variances above 5 percent of the flexible budget amount for direct materials, direct labor, and variable overhead.
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