Core concepts
- 01Standard cost: predetermined cost based on technical estimates.
- 02Variance: difference between actual and standard.
- 03Material variances: Cost (Price + Usage); Usage = Mix + Yield.
- 04Labour variances: Cost (Rate + Efficiency); Efficiency = Mix + Yield + Idle Time.
- 05Overhead variances: Variable (Expenditure + Efficiency); Fixed (Expenditure + Volume = Capacity + Efficiency + Calendar).
Flowchart
Variance Tree | Cost = Price + Usage | Usage = Mix + Yield Labour Cost = Rate + Efficiency Efficiency = Mix + Yield + Idle Time FOH Volume = Capacity + Efficiency + Calendar
Exam-critical pointers
- ⭐F (Favourable) when actual < standard for cost; A (Adverse) otherwise.
- ⭐Standards: Ideal, Normal, Basic, Current — each suited to different purposes.
- ⭐Reconciliation between standard and actual profit using variances is a 12-mark sum.
- ⭐Mix variance arises only when there are 2+ inputs; total of sub-variances must equal main.
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