Reasons for Variance
Variance FAVOURABLE
Direct material Decrease in price of raw
price variance mat, discount for bulk
purchases, unforeseen
discounts received, more
care taken in purchasing ,
change in material standard
Direct material Material used of higher
usage variance quality than standard
more effective use made of
material,
errors in allocating material
to jobs
ADVERSE
Price increase, careless
purchasing, change in
material standard
Defective material, excessive
waste, theft
stricter quality control ,
errors in allocating material
to jobs ,unskilled or
untrained workers, use of
inferior quality materials,
faulty or poorly adjusted
machines and equipment,
lack of care in using
materials, inaccurate
standards
Reasons for Variance
FAVOURABLE ADVERSE
Direct labour Use of apprentices or Overtime, appointment of
rate variance other workers highly skilled workers,
at a rate of pay lower change in wage rates,
than standard, use of inaccurate standards
new and properly
adjusted machines and
equipment
Direct labour Output produced more lost time in excess of
efficiency quickly than expected standard allowed.
variance because of work output lower than
motivation, better standard set because of
quality of equipment or deliberate restrictions,
materials, or better lack of training or sub-
methods. standard
errors in allocating time material used, errors in
to jobs allocating time to jobs
 FAVOURABLE ADVERSE

Variable overhead Savings in costs incurred, more Increase in cost of overheads used,
spending variance economical use of overheads excessive use of overheads, change
(e.g. increase in order size of in type of overheads
indirect material leading to bulk
discounts on purchase), a
decrease in the general price
level of indirect supplies, more
efficient cost control (e.g.
optimizing electricity
consumption through the
installation of energy efficient
equipment)
Variable overhead Labour force working more Labour force working less
efficiency variance efficiently, (favourable labour efficiently (adverse labour
efficiency), better supervision or efficiency)lack of supervision
staff training use of new and
properly adjusted machines and
equipment, appointment of
highly skilled workers, use of high
quality materials, inaccuracy in
setting standards.
 FAVOURABLE ADVERSE

Fixed Savings in costs Increase in cost of

overhead incurred, changes in services used,
spending prices relating to excessive use of
variance fixed overhead services, change in
expenditure type of services used
Fixed Labour force working Labour force working
overhead more efficiently less efficiently, lost
volume production through
efficiency strike
Fixed Labour force working Machine breakdown,
overhead overtime strikes, labour
volume shortage
capacity
 FAVOURABLE ADVERSE

Sales Price Decrease in the number Increase in competition in

Variance of competitors in the the market
market Decrease in demand for
Improved product the products
differentiation and Reduction in price
market segmentation enforced by regulatory
Better promotion and authorities
aggressive sales
campaign
Sales Volume
Higher total number of Lower total number of
Variance units sold than budgeted units sold than budgeted

Sales Mix Higher proportion of the Higher proportion of the

Variance more profitable products less profitable products
sold than planned in the sold than anticipated in
budget the budget