Differences between actual behavior and planned behavior are analyzed quantitatively in variance analysis. By investigating areas in which unexpected failures have occurred, this analysis serves to maintain control over a business. Variance analysis indicates a $ difference between what you PLANNED and what was ACTUAL.
The variance analysis is particularly useful when you analyze changes in a variance level from month to month on a trend line so that you can track any changes in the variance level more quickly. Compared to expectations, variance analysis also investigates these differences, and with this, you have a complete interpretation of these variances.
Common Variances and variance analysis
Variances are commonly derived from the following variance analysis factors:
Purchase price variance
This variance is calculated by the actual price you paid for materials used to complete the production process. Then it would help if you subtracted the standard or budgeted cost and then multiply the actual number of units purchased.
This ratio is more relevant when the business needs to decide the order quantity for the material to be purchased. It helps business managers to assess if purchases are expected to remain within the prescribed limit of the budget.
Further, the price is estimated when planning for the year. So, the standard price set in the budget may not reflect the actual price on account of inflation and other economic crunches.
So, It’s often discussed if price variance is controllable by the business managers. The manager can control not all aspects of the material supply, and however, supplier selection, the process of quotation, and price negotiation are dependent on the managers to a greater extent.
The following formula is used in the calculation of the purchase price variance.
Price variance = (Actual price – standard price) x Actual quantity purchased.
If the actual price is more than planned in the budget, the variance is adverse. On the other hand, if the actual price is less than the budget, the variance is favorable. Further, variance needs to be analyzed if that is controllable or uncontrollable by the business managers.
Labor rate variance
This variance is calculated based on the actual rate paid to the labor directly involved in the production process. Then you need to minus its budgeted or standard rate. In the end, you need to multiply the number of actual hours worked by the labor.
The following formula is used to calculate the labor rate variance.
Labor rate variance = (Actual rate – standard rate) x Actual hours worked by labor.
It’s important to note that this variance is only about the labor rate and is more about the human resource and payroll department of the business.
Variable overhead spending variance
This variance is calculated by subtracting the budgeted or standard variable overhead cost per unit from the actual cost. Then you need to multiply the remainder value with the total quantity of units for the output.
Following is the formula to calculate the variable overhead spending ratio
Variable overhead spending ratio = (Actual rate-standard rate) x Actual hours worked
This ratio helps to understand standard overheads and how much the business has incurred on overheads to perform the level of activity. Further, the overheads rate can be presented in terms of labor hours and machine hours as well.
Fixed overhead spending variance
This variance is for the total amount. And these are the fixed overhead costs that exceed your standard cost in a particular reporting period.
It’s one of the simplest ratios to understand and computed by a given formula.
Fixed overhead spending variance = (Actual fixed overheads- Budgeted fixed overhead)
If actual overheads are more than budgeted, the variance is adverse and favorable otherwise.
Selling price variance
This variance is calculated based on the actual selling price, then subtracted from your product’s budgeted or standard selling price. In the end, multiply it by the number of production units sold in the market.
This ratio helps to understand if the business has successfully sold products at a pre-set price or not. The following formula is used to calculate the selling price variance.
Selling price variance = (Actual selling price – Standard selling price) x units sold
Material yield variance
This variance helps if the business has efficiently used material in the production process. If there is a higher production loss, there seems to be an adverse material yield ratio. On the other hand, the expected variance is favorable if the business processes have been efficient.
The following formula is used to calculate the material yield variance,
(Actual usage – Budgeted usage) x standard cost per unit
So, such variance is calculated by subtracting the overall budgeted or standard quantity of materials from actual usage. Then you need to multiply with the standard rate; this results in the usage variance.
Labor efficiency variance
This variance is based on the math that what should have been the labor cost and what it has been in the actual. This variance arises due to the efficiency or speed of the work performed by the business. For instance, if the labor has maintained a speed of the work, the variance is expected to be favorable and adverse otherwise.
Following is the formula to calculate the labor efficiency variance.
Labor efficiency variance = (Actual hours – standard hours) x standard rate.
So, this variance is calculated by subtracting the standard or budgeted time of labor consumed from actual time and multiplying the value with the standard labor rate per hour.
Variable overhead efficiency variance
This variance is about the timing of the manufacturing/production process. If the production process is lengthy, it’s expected to consume more overheads and resources. On the other hand, if the process is relatively short, it’s expected to consume fewer resources or overheads with time.
The following formula is used to calculate the variable overhead efficiency ratio.
VOER = (Actual labor hours-Budgeted labor hours) x budgeted overhead per hour
Using this ratio, the efficiency of labor and machine hours can be assessed. Further, it’s quite logical to assume that lengthy periods of both machine and labor consume higher resources and vice versa. Likewise, controlling production hours can lead to improvement in the overall production and business profitability.
It is not compulsory to calculate all the variances at the same time. Many organizations follow different techniques and use a mix of these variances to arrive at a sound decision. So, the main objective of the variance analysis is to control the cost and enhance business profitability.
Conclusion for variance analysis
Variance analysis is an important managerial concept, and it’s been used by companies around the globe to control their cost and direct their efforts to enhance profitability. There are two main types of variances: rate and usage/efficiency.
Rate variance is when the business needs to control the purchasing price of the product that may be done by doing proper product research, analyzing new markets, negotiating prices with the suppliers, etc. On the other hand, efficiency variance is about the speed of the time completion. So, if the business can complete the work on a timely basis, it will lead to higher efficiency and higher business profitability.
Also read, the importance of financial analysis
Tofauti kati ya tabia halisi na tabia iliyopangwa inachunguzwa kwa kiasi katika uchambuzi wa kutofautiana. Kwa kuchunguza maeneo ambayo kushindwa kutarajiwa kumetokea, uchambuzi huu hutumika kudumisha udhibiti juu ya biashara. Uchambuzi wa kutofautiana unaonyesha tofauti ya $ kati ya kile ulipanga na kile kilichokuwa halisi. Utafiti wa kutofautiana ni muhimu hasa wakati wewe kuchambua mabadiliko katika kiwango cha kutofautiana kutoka mwezi hadi mwezi juu ya mstari mwenendo ili uweze kufuatilia mabadiliko yoyote katika kiwango cha kutofautiana kwa haraka zaidi. Kwa mfano, kwa mfano, uchambuzi wa kutofautiana unachunguza tofauti hizi, na kwa hivyo, una tafsiri kamili ya tofauti hizi. Variances ni kawaida inayotokana na sababu zifuatazo za uchambuzi wa tofauti: Kupata bei tofauti Hii ni mahesabu kwa bei halisi uliyolipa kwa vifaa kutumika kukamilisha mchakato wa uzalishaji. Kwa hiyo, ni muhimu kuondoa gharama za kawaida na kuzidisha idadi ya bidhaa zilizonunuliwa. Uwiano huu ni muhimu zaidi wakati biashara inahitaji kuamua kiasi cha agizo kwa ajili ya vifaa vya kununuliwa. Inasaidia wasimamizi wa biashara kutathmini kama ununuzi unatarajiwa kubaki ndani ya kikomo cha bajeti. Zaidi ya hayo, bei inakadiriwa wakati wa kupanga kwa mwaka. Kwa hiyo, bei ya kawaida iliyowekwa katika bajeti inaweza isionyeshe bei halisi kwa sababu ya mfumuko wa bei na matatizo mengine ya kiuchumi. Hivyo, ni mara nyingi kujadiliwa kama tofauti ya bei ni kudhibitiwa na wasimamizi wa biashara. Msimamizi hawezi kudhibiti mambo yote ya ugavi wa vifaa, na hata hivyo, uteuzi wa wauzaji, mchakato wa kutoa nukuu, na mazungumzo ya bei hutegemea mameneja kwa kiwango kikubwa. Fomula ifuatayo hutumiwa katika mahesabu ya kutofautiana kwa bei ya ununuzi. Bei variance = (Bidhaa halisi <unk> bei ya kawaida) x Kiasi halisi kununuliwa. Kama bei halisi ni zaidi ya iliyopangwa katika bajeti, kutofautiana ni hasi. Kwa upande mwingine, kama bei halisi ni chini ya bajeti, kutofautiana ni mazuri. Zaidi ya hayo, kutofautiana inahitaji kuchambuliwa kama kwamba ni kudhibitiwa au uncontrollable na wasimamizi wa biashara. Kiwango cha kazi tofauti Hii tofauti ni mahesabu kulingana na kiwango halisi kulipwa kwa kazi moja kwa moja kushiriki katika mchakato wa uzalishaji. Kisha unahitaji minus yake bajeti au kiwango cha kawaida. Mwishowe, unahitaji kuzidisha idadi ya saa halisi zilizofanywa na kazi. Fomula ifuatayo hutumiwa kuhesabu tofauti ya kiwango cha kazi. Kazi kiwango cha kutofautiana = (Hakika kiwango <unk> kiwango cha kawaida) x Saa halisi kazi na kazi. Ni muhimu kutambua kwamba kutofautiana hii ni tu kuhusu kiwango cha kazi na ni zaidi kuhusu rasilimali za binadamu na idara ya mshahara wa biashara. Variance ya gharama za juu za kutofautiana Hii kutofautiana ni mahesabu kwa kuondoa bajeti au kiwango cha gharama za juu za kutofautiana kwa kila kitengo kutoka kwa gharama halisi. Kisha unahitaji kuzidisha thamani ya mabaki na kiasi cha jumla ya vitengo kwa ajili ya pato. Kiwango cha gharama za juu: Kiwango cha gharama za juu: Kiwango cha gharama za juu: Kiwango cha gharama za juu: Kiwango cha gharama za juu: Kiwango cha gharama za juu: Kiwango cha gharama za juu: Kiwango cha gharama za juu: Kiwango cha gharama za juu: Kiwango cha gharama za juu: Kiwango cha gharama za juu: Kiwango cha kiwango cha kiwango cha kiwango cha kiwango cha kiwango cha kiwango cha kiwango cha kiwango cha kiwango cha kiwango cha kiwango cha kiwango cha kiwango cha kiwango cha kiwango cha kiwango cha kiwango. Zaidi ya hayo, kiwango cha gharama za jumla inaweza kuwasilishwa katika suala la saa za kazi na saa mashine pia. Fixed overhead matumizi variance Hii variance ni kwa ajili ya kiasi cha jumla. Hii ni gharama za kawaida za kawaida ambazo zinazidi gharama za kawaida katika kipindi fulani cha ripoti. Ni moja ya uwiano rahisi kuelewa na mahesabu na formula fulani. Utaratibu wa gharama za juu za kudumu (Fixed Overhead Variance) - Utaratibu wa gharama za juu za kudumu za kudumu (Fixed Overhead Variance) ni kiwango cha juu cha gharama za juu za kudumu (Fixed Overhead Variance) ambazo ni sawa na kiwango cha juu cha gharama za juu. Utofauti wa bei ya kuuza Utofauti huu ni mahesabu kulingana na bei halisi ya kuuza, kisha subtracted kutoka bidhaa yako ya bajeti au kiwango cha bei ya kuuza. Mwishowe, kuzidisha kwa idadi ya vitengo vya uzalishaji kuuzwa katika soko. Uwiano huu husaidia kuelewa kama biashara imefanikiwa kuuza bidhaa kwa bei iliyowekwa mapema au la. Fomula ifuatayo hutumiwa kuhesabu tofauti ya bei ya kuuza. Kiwango cha bei ya kuuza: Kiwango cha bei ya kuuza: Kiwango cha bei ya kuuza: Kiwango cha bei ya kuuza: Kiwango cha bei ya kuuza: Kiwango cha bei ya kuuza: Kiwango cha bei ya kuuza: Kiwango cha bei ya kuuza: Kiwango cha bei ya kuuza: Kiwango cha bei ya kuuza: Kiwango cha bei ya kuuza: Kiwango cha bei ya kuuza: Kiwango cha kuuza: Kiwango cha kuuza: Kiwango cha kuuza: Kiwango cha kuuza. Kama kuna hasara ya juu ya uzalishaji, kuna inaonekana kuwa hasi nyenzo mavuno uwiano. Kwa upande mwingine, kutofautiana inatarajiwa ni mazuri kama michakato ya biashara wamekuwa ufanisi. Fomula ya chini hutumiwa kuhesabu tofauti ya pato la nyenzo (matumizi halisi <> matumizi ya bajeti) x gharama ya kawaida kwa kitengo, kwa hivyo tofauti hiyo inahesabiwa kwa kuondoa jumla ya bajeti au kiwango cha vifaa kutoka kwa matumizi halisi. Kisha unahitaji kuzidisha na kiwango cha kawaida; hii husababisha kutofautiana kwa matumizi. Utaratibu wa kazi ya kazi (Variance of labor efficiency) ni kipimo cha kiwango cha kazi ya kazi na gharama ya kazi ya kazi (Labour Efficiency) inayotegemea uwiano wa kazi ya kazi na gharama ya kazi. Tofauti hii hutokea kutokana na ufanisi au kasi ya kazi iliyofanywa na biashara. Kwa mfano, kama kazi imehifadhiwa kasi ya kazi, kutofautiana inatarajiwa kuwa mazuri na hasi vinginevyo. Yafuatayo ni formula ya kuhesabu kazi ufanisi kutofautiana. Kazi ufanisi kutofautiana = (Saa halisi <unk> saa ya kawaida) x kiwango cha kawaida. Hii ni kwa sababu ya kuondoa muda wa kawaida wa kazi kutoka kwa wakati halisi na kuzidisha thamani na kiwango cha kawaida cha kazi kwa saa. Variable overhead ufanisi kutofautiana Hii kutofautiana ni kuhusu muda wa utengenezaji / uzalishaji mchakato. Kama mchakato wa uzalishaji ni mrefu, ni inatarajiwa kutumia zaidi ya juu na rasilimali. Kwa upande mwingine, kama mchakato ni mfupi, inatarajiwa kutumia rasilimali chache au gharama za juu na muda. Fomula ifuatayo hutumiwa kuhesabu uwiano wa ufanisi wa juu wa kubadilika. VER = Saa za kazi halisi (vituo vya kazi) x gharama za jumla kwa saa (vituo vya kazi) Zaidi ya hayo, ni mantiki kabisa kudhani kwamba vipindi virefu vya mashine na kazi hutumia rasilimali nyingi na kinyume chake. Vivyo hivyo, kudhibiti masaa ya uzalishaji inaweza kusababisha uboreshaji katika uzalishaji wa jumla na faida ya biashara. Si lazima kuhesabu variances wote kwa wakati mmoja. Mashirika mengi hufuata mbinu tofauti na kutumia mchanganyiko wa tofauti hizi ili kufikia uamuzi mzuri. Hivyo, lengo kuu la uchambuzi wa kutofautiana ni kudhibiti gharama na kuongeza faida ya biashara. Utafiti wa kutofautiana ni dhana muhimu ya usimamizi, na imekuwa ikitumiwa na makampuni duniani kote kudhibiti gharama zao na kuelekeza juhudi zao ili kuongeza faida. Kuna aina mbili kuu za variances: kiwango na matumizi / ufanisi. Kiwango cha tofauti ni wakati biashara inahitaji kudhibiti bei ya ununuzi wa bidhaa ambayo inaweza kufanywa kwa kufanya utafiti sahihi wa bidhaa, kuchambua masoko mapya, kujadili bei na wauzaji, na kadhalika. Kwa upande mwingine, ufanisi variance ni kuhusu kasi ya kukamilika muda. Kwa hivyo, ikiwa biashara inaweza kukamilisha kazi kwa wakati unaofaa, itasababisha ufanisi wa juu na faida ya biashara ya juu. Pia soma, umuhimu wa uchambuzi wa kifedha