Variance analysis calculator

How do you calculate variances in standard costing?

A variance is the gap between what something should have cost, or earned, for the output actually achieved and what it really did. Every cost variance here is worked as standard minus actual: a positive answer means less was spent than the standard allows, which is favorable (F), and a negative answer is adverse (A). Sales variances run the other way round, actual minus standard, so that more revenue is favorable. The key step is flexing: standards are applied to the actual output, not the budgeted output.

AQ is actual quantity, SQ standard quantity, SP standard price, SR standard rate and SH standard hours.

How do you calculate material price and usage variances?

The default figures: each unit should use 3 kg at a standard $4 per kg. The business made 2,000 units, used 6,200 kg and paid $25,420 for it. Laid out as a written answer:

1. Standard quantity for actual output = 2,000 x 3 = 6,000 kg, so the standard cost is 6,000 x $4 = $24,000.
2. Price variance = 6,200 x $4 - $25,420 = $24,800 - $25,420 = $620 A. The material cost $4.10 a kg instead of $4.
3. Usage variance = (6,000 - 6,200) x $4 = $800 A. 200 kg more than standard were used, valued at standard price.
4. Total material variance = $24,000 - $25,420 = $1,420 A, which is $620 A + $800 A.

When the quantity bought differs from the quantity used and inventory is held at standard price, the price variance is worked on purchases. Had 6,500 kg been bought for the same $25,420, the price variance would be 6,500 x $4 - $25,420 = $580 F, while usage stays at $800 A. Switch on Quantity bought differs from quantity used to work it that way.

How do you calculate labor rate, idle time and efficiency variances?

Labor splits three ways when some paid hours produce nothing. Take a UK workshop with a standard of 1.5 hours per unit at £14 an hour. It made 3,000 units, paid for 4,800 hours costing £68,640, and 150 of those hours were idle while a machine was repaired, so 4,650 hours were worked.

1. Standard hours for actual output = 3,000 x 1.5 = 4,500, a standard cost of £63,000.
2. Rate variance = 4,800 x £14 - £68,640 = £1,440 A, since the actual rate was £14.30 an hour.
3. Idle time variance = 150 x £14 = £2,100 A. Idle time is always adverse because those hours were paid for and produced nothing.
4. Efficiency variance = (4,500 - 4,650) x £14 = £2,100 A, measured on hours worked, not hours paid.
5. Total = £63,000 - £68,640 = £5,640 A, and £1,440 + £2,100 + £2,100 = £5,640.

Without the idle time split, the same 150 hours would be buried inside a larger efficiency variance. The default dollar figures show it: 4,300 hours paid with no idle time give an efficiency variance of $3,600 A, but with 200 idle hours it becomes $2,400 A idle time and $1,200 A efficiency.

How do you calculate variable overhead variances?

Variable overhead, such as power and machine consumables, is usually absorbed on labor hours worked, so its variances mirror labor. The default figures use $3 per labor hour, 2 standard hours per unit, 4,100 hours worked and an actual variable overhead of $12,710:

1. Standard hours for 2,000 units = 4,000, so the standard cost is 4,000 x $3 = $12,000.
2. Expenditure variance = 4,100 x $3 - $12,710 = $12,300 - $12,710 = $410 A. Overhead ran at $3.10 per hour worked.
3. Efficiency variance = (4,000 - 4,100) x $3 = $300 A.
4. Total = $12,000 - $12,710 = $710 A.

The efficiency variance has the same cause as the labor efficiency variance: the extra 100 hours drew $3 of overhead each. Idle hours are normally assumed to use no variable overhead, which is why the calculation uses hours worked.

How do you calculate fixed overhead expenditure and volume variances?

Under absorption costing, fixed overhead is charged to units at a predetermined rate. With a budget of $40,000 and budgeted output of 2,500 units, the rate is $40,000 / 2,500 = $16 per unit. Actual output was 2,000 units and actual fixed overhead $41,500:

1. Expenditure variance = $40,000 - $41,500 = $1,500 A. More was spent than budgeted.
2. Volume variance = (2,000 - 2,500) x $16 = $8,000 A. Fewer units were made, so less overhead was absorbed.
3. Overhead absorbed = 2,000 x $16 = $32,000, against $41,500 spent: under-absorbed by $9,500, which is the total variance, $9,500 A.

The volume variance is not money spent; it measures how far output fell short of the level the rate was set for. That is why marginal costing has no volume variance at all: fixed overhead is treated as a period cost and only the expenditure variance, $1,500 A, remains. Choose the costing system in the Fixed overhead tab to see both.

Sales variances: contribution or profit basis?

The sales price variance compares actual revenue with actual units at the standard price. The sales volume variance values the change in units at a standard margin, and the margin depends on the costing system: standard contribution under marginal costing, standard profit under absorption costing. The calculator asks which one you want and says it in the result.

An example in euros: a budget of 5,000 units at a standard price of €80 and a standard contribution of €30. Actual sales were 5,400 units for €421,200, so €78 each.

1. Price variance = €421,200 - 5,400 x €80 = €10,800 A.
2. Volume variance on contribution = (5,400 - 5,000) x €30 = €12,000 F.
3. If the standard profit per unit were €12, the absorption costing volume variance would be 400 x €12 = €4,800 F instead.

Lower prices and higher volume often go together, so read the two variances as a pair: here the price cut cost €10,800 and the extra units brought €12,000 of contribution.

How do variances reconcile budgeted profit to actual profit?

Exam questions often ask for an operating statement that starts from budgeted profit and arrives at actual profit. The default figures form one consistent business: a standard selling price of $70, a standard variable cost of $42 per unit (material $12, labor $24, variable overhead $6) and fixed overhead of $16 per unit, so standard profit is $12. The budget was 2,500 units; 2,000 were made and sold for $144,000.

Check it directly: revenue of $144,000 less actual costs of $25,420 + $53,750 + $12,710 + $41,500 = $133,380 leaves $10,620. On a marginal costing statement the volume variance is 500 x $28 = $14,000 A, fixed overhead appears at its $40,000 budget, and actual profit is the same $10,620 because nothing went into inventory.

How do you calculate variances in Excel?

Put each standard and actual figure in its own cell and write the variance as standard minus actual, so the sign tells you F or A. For the material price variance, with the quantity bought in B1, the standard price in B2 and the actual cost in B3:

=B1*B2-B3

For usage, with actual output in B4, standard quantity per unit in B5 and quantity used in B6: =(B4*B5-B6)*B2. To print the label beside the amount, use =TEXT(ABS(C1),"#,##0")&IF(C1>=0," F"," A") with the variance in C1. The same pattern covers labor, overhead and sales; keep sales as actual minus standard. Google Sheets accepts the same formulas.

Common variance analysis mistakes

• Using budgeted output instead of actual output. Standard quantities and hours must be flexed to what was actually produced.
• Measuring efficiency on hours paid when there was idle time. Efficiency uses hours worked; idle hours get their own variance.
• Valuing usage or efficiency at the actual price. Quantity variances are always valued at the standard price or rate.
• Getting the sign the wrong way round for sales. More revenue or more units than standard is favorable.
• Valuing sales volume at revenue. It is valued at standard contribution or standard profit, never at selling price.
• Treating every favorable variance as good news. Cheap material can cause an adverse usage variance; a favorable rate variance can mean less skilled staff and an adverse efficiency variance.

What the variance calculator leaves out, and a glossary

The calculator covers the basic variance set. It does not split material usage into mix and yield, labor into mix and yield, the fixed overhead volume variance into capacity and efficiency parts, or any variance into planning and operational parts, and it does not handle sales mix and quantity across several products. Those build on the same standard-minus-actual logic shown here. For the inventory side of material decisions, the EOQ calculator finds the order size with the lowest ordering and holding cost.

Standard cost: the planned cost of one unit, built from quantities and prices. Flexed budget: the budget restated for actual output. Favorable (F): a variance that increases profit against the standard. Adverse (A): a variance that reduces it. Absorption rate: budgeted fixed overhead divided by budgeted output or hours. Under-absorbed overhead: actual overhead above the amount absorbed. Idle time: paid hours in which no work was done. Operating statement: a reconciliation of budgeted profit to actual profit through the variances.

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