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A General Model for Variance Analysis

Variance Analysis

Materials price variance Materials quantity variance

Labor rate variance Labor efficiency variance
VOH spending variance VOH efficiency variance

A General Model for Variance Analysis

Actual Quantity Actual Quantity Standard Quantity

× × ×
Actual Price Standard Price Standard Price

Price Variance Quantity Variance

A General Model for Variance Analysis

Actual Quantity Actual Quantity Standard Quantity

× × ×
Actual Price Standard Price Standard Price

Actual quantity is the amount of direct

materials, direct labor, and variable

A General Model for Variance Analysis

Actual Quantity Actual Quantity Standard Quantity

× × ×
Actual Price Standard Price Standard Price

Standard quantity is the standard quantity

allowed for the actual output for the period.

A General Model for Variance Analysis

Actual Quantity Actual Quantity Standard Quantity

× × ×
Actual Price Standard Price Standard Price

Actual price is the amount actually

paid for the for the input used.

A General Model for Variance Analysis

Actual Quantity Actual Quantity Standard Quantity

× × ×
Actual Price Standard Price Standard Price

Standard price is the amount that should

have been paid for the input used.

A General Model for Variance Analysis

Actual Quantity Actual Quantity Standard Quantity

× × ×
Actual Price Standard Price Standard Price

(AQ × AP) – (AQ × SP) (AQ × SP) – (SQ × SP)

AQ = Actual Quantity SP = Standard Price
AP = Actual Price SQ = Standard Quantity

Instructions:

You can solve the problems by using above

methods.
Or
You can use formula which are available in the
next slides.

Material Variances:
Using the Factored Equations

Formula Method:
Materials price variance
MPV = AQ (AP - SP)
Materials quantity variance
MQV = SP (AQ - SQ)

Labor Variances:
Using the Factored Equations

Labor rate variance

LRV = AH (AR - SR)
Labor efficiency variance
LEV = SR (AH - SH)