Question

1. A variance is the difference between a budgeted, planned, or standard cost and the actual amount incurred/sold. Variances can be computed for both costs and revenues. Identify and explain the types of variance analysis tools, which can be used in a production department of a manufacturing company, which specialises in spare parts for cars.

Answer 1

The variance tools that can be used in a production department of a manufacturing company, which specialises in spare parts for cars are direct materials variance, direct labor variance , fixed overhead variance etc.

The direct material variance is the difference between the standard material cost of the output produced and the actual material cost incurred where the quantities of material purchased and used are different.

Direct labor variance indicates the difference between the standard direct labor cost of the output which has been produced and the actual direct labor cost incurred.

Fixed overhead variance is the difference between the standard cost of fixed overhead absorbed in the production achieved , whether completed or not , and the fixed overhead attributed and charged to that period.