Concept Of Variance Analysis And Types Of Variances

The terms variance refers to the deviation of the actual costs from the standard costs due to various causes.

Variance analysis is the process of calculating the deviation of the actual costs from the standards and of interpreting the results. Variance analysis helps to ascertain the magnitude of each of the variances and causes of variance so that corrective actions can be taken.
For three main elements of costs, variances are to be calculated and analyzed- material, labor and overheads.

Types Of Variances

1. Material Variance
- material cost variance
- material price variance
- material usage variance
- material mix variance
- material yield variance

2. Labor Variance
- labor cost variance
- labor rate variance
- labor efficiency variance
- labor idle time variance
- labor mix variance
- labor yield variance