It then should be your aim to produce a report in an adequate granularity. For example, a manufacturer might focus on variances in its inventory purchase price or material yield, while a service-based company might look more at its labor efficiency variance.
Subtract the total standard quantity of materials that are supposed to be used from the actual level of use and multiply the remainder by the standard price per unit. Selling price variance.
They are: Time delay. Related Courses. Variance analysis also involves the investigation of these differences, so that the outcome is a statement of the difference from expectations, and an interpretation of why the variance occurred.
Under this approach, the results of multiple periods are listed side-by-side, so that trends can be easily discerned.
Hence source of information is important. For example, if you find a positive sales variance, you do research to find out if it was caused by higher than expected sales prices, greater sales volume, or a more profitable mix of products being purchased by your customers.
The actual selling price, minus the standard selling price, multiplied by the number of units sold. You may see this as an advantage because you provide more information but it can lead to confusion. For actual expenses that come in below budget, you want to research and understand whether the cause is a one-time or infrequent event, whether your budget was based on poor assumptions, or whether your company found a way to cut costs on an ongoing basis, among other possible explanations.
Positive Budget Variances A budget variance is positive, or favorable, when actual revenue results are higher than budget expectations, or expenses are lower than budget.