Variance analysis

Prof. GURU PRASAD

FACULTY MEMBER
INC GUNTUR
pgp4149@gmail.com
 Budget for January
Particulars Product A Product B Product C Total Budget
100 100 100
Unit Total Unit Total Unit Total

Sales 1.00 100.00 2.00 200.00 3.00 300.00 600.00

Standard Variable cost:

Material 0.50 50.00 0.70 70.00 1.50 150.00 270.00

Labor 0.10 10.00 0.15 15.00 0.10 10.00 35.00
Variable Overheads 0.20 20.00 0.25 25.00 0.20 20.00 65.00
Total Variable Cost 0.80 80.00 1.10 110.00 1.80 180.00 370.00
Contribution 0.20 20.00 0.90 90.00 1.20 120.00 230.00
Fixed Costs:

Fixed Overheads 25.00 25.00 25.00 75.00

Selling Expenses 17.00 17.00 17.00 51.00

Administrative Overheads 8.00 8.00 8.00 24.00

Total Fixed Costs 50.00 50.00 150.00

Profit Before Tax -30.00 40.00 70.00 80.00

 Selling Price Variance
A B C Total

Actual Volume 100.00 200.00 150.00

Actual Price Per unit 0.90 2.05 2.50

Budgeted Price Per Unit 1.00 2.00 3.00

Actual over/(under) budget price (0.1) 0.05 (0.5)

Actual Over/under Budget per unit -0.10 10.00 -75.00 -75.00

 Sales Mix and Volume Variance
Product Actual Volume Budgeted Volume Difference Unit Variance
Contribution

A 100 100 - - 0

B 200 100 100 0.90 90

C 150 100 50 1.20 60

Total 450 300 150

 Mix Variance
Product Budgeted Budgeted mix at Actual Difference Unit Variance
Proportion actual volume Sales Contribution

A
0.33 150.00 100.00 (50.00) 0.20 -10.0
0
B
0.33 150.00 200.00 50.00 0.90 45.00
C
0.33 150.00 150.00

Total 450.00 450.00 35.00

 Sales Volume Variance
Product Budgeted Budgeted Difference Unit Volume
Mix at Volume Contribution Variance
Actual
Volume

A 150 100 50 0.20 10

B 150 100 50 0.90 45

C 150 100 50 1.20 60

Total 450 300 150 115

 Revenue Variances by Product

A B C Total

Price Variance (10) 10 (75) (75)

Mix Variance (10) 45 - 35

Volume Variance 10 45 60 115

Total (10) 100 (15) 75

 Industry Volume and Market share Variances
A. Budgeted Sales Volume

Product A Product B Product C Total

Estimated Industry Volume (Units) 833 500 1667 3000

Budgeted Market Share 12% 20% 6% 10%
Budgeted Volume (Units) 100 100 100 300
B. Actual Market Share
Product A Product B Product C Total
Actual Industry Volume 1000 1000 1000 3000
Actual Sales (units) 100 200 150 450
Actual Market Share 10% 20% 15% 15%
C. Variance Due to Market Share
Product A Product B Product C Total
(1) Actual Sales( Units) 100 200 150 450
(2) Budgeted Shares at actual Industry Volume 120 200 60 380
(3) Difference(1-2) -20 - 90 70
(4) Budgeted Unit Contribution 0.2 0.9 1.2
(5) Variance Due to market share(3*4) (4.00) - 108 104
D. Variance Due to Industry Volume
Product A Product B Product C Total
(1) Actual Industry Volume 1000 1000 1000 3000
(2) Budgeted Industry Volume 833 500 1667 3000
(3) Difference(1-2) 167 500 667 0
(4) Budgeted Market share 12 20 6
(5)( 3*4) 20 100 (40.00)
(6) Unit Contribution budget) 0.20 0.90 1.20
 Fixed cost Variances
Actual Budget Favorable or
Unfavorable
Fixed 75 75 -
Overhead
Selling 55 50 (5)
Expenses
Administrative 30 25 (5)
Expenses
Total 160 150 (10)
 Variations In Practice
• Time Period of the comparison
• Focus on Gross Margin
• Evaluation Standards
Historical Standards
External Standards
• Limitations of Standards
• Full Cost System
• Amount of Detailed
• Engineered Discretionary costs
Limitations of Variance Analysis
• It tells ‘where’ the variance occurred but
not ‘why’
• Significance of variance is not determined
• Information may be misinterpreted if the
data is aggregated
• Future effects of variances not known
 Variable Manufacturing Expenses Variances
A B C Total Actual Favorable /
Unfavorable
Material 75 84 300 459 470 (11)
Labor 15 18 20 53 65 (12)
Overhead 30 30 40 100 90 10
(variable)
120 132 360 612 625 (13)
 Summary Performance Report
Actual Profit 132
Budgeted Profit 80
Variance 52

Analysis of Variance-Favorable/Unfavorable
Revenue Variances:
Price (75)
Mix Variance 35
Volume 115
Net Revenue Variance 75

Variable Cost Variances:

Material (11)
Labor (12)
Variable Overhead 10
Net variable cost variance (13)

Fixed Cost Variances:

Selling Expenses (5)
Administrative Expenses (5)
Net fixed cost variances (10)

Variance (52)