Standard Costing-The Sources of Variances

In standard costing, the idea is establish the attainable standards and then work out the variance between the standard and the actual. By reviewing the variances,managers can immediately take the necessary corrective actions. Therefore it is necessary for them to understand the various type of variances that they are facing and their sources.


Append below is a snapshot or summary of type of variances and its sources:


Variance:Sales PRICE
Source:Actual selling price

Variance:Sales VOLUME
Source:Actual units sold

Variance: Direct materials PRICE
Source:Actual cost of materials

Variance: Direct materials USAGE
Source:Actual usage of materials

Variance: Direct materials MIX
Source:Material Mix

Variance:Direct materials YIELD
Source:Actual output

Variance:Direct labor RATE
Source:Actual labor rate

Variance:Direct labor EFFICIENCY
Source:Actual productivity

Variance:Variable production overhead EFFICIENCY
Source:Actual consumption per unit of output

Variance:Variable production overhead EXPENDITURE
Source:Actual variable production overhead

Variance:Fixed production overhead EXPENDTIURE
Source:Actual fixed production overhead