The difference between the standard cost and the actual cost is known as ‘cost variance’.
The difference between the
standard cost and the actual cost is known as ‘cost variance’. If actual cost
is less than the standard cost, the variance is favorable. If the actual cost
is more than the standard cost, the variance is unfavorable. A favorable
variance indicates efficiency, while an unfavorable one denotes inefficiency.
However, mere knowledge of these variances would not be useful for ensuring
cost control. These have to be thoroughly analyzed so as to find out the
contributory factors. It would then be possible to find out whether the
variances are amenable to control or not. The term ‘variance analysis’, thus, may
be defined as ‘the resolution into constituent parts and the explanation of
Variances are of two types: cost
variances and sales variances. In this lesson cost variances relating to
material and labour are explained.
Tags : Accounting For Managers - Cost Estimation And Control-Standard Costing And Variance Analysis
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