What is spending variance

The first step in activity -based variance analysis is to assign all overhead costs to a level of activity. Next, activity standards standard rates must be calculated. To reach this standard rate, the annual overhead cost is divided by the cost center's practical capacity.

How do you find spending variance? The spending variance for direct materials is known as the purchase price variance , and is the actual price per unit minus the standard price per unit, multiplied by the number of units purchased. How do you calculate cost variance? To calculate a static budget variance , simply subtract the actual spend from the planned budget for each line item over the given time period.

Divide by the original budget to calculate the percentage variance. How do you calculate a budget? Calculate your monthly income. If you work hourly, multiply your hourly wage by the number of hours you work per week.

If you work salary, divide your yearly net salary by 12 to determine approximately how much money you make per month. Similar Asks. The material price variance reveals the difference between your standard price for materials purchase and the amount you actually paid for those materials. The materials quantity variance compares the standard quantity of materials that should have been used compared to the actual quantity of materials used.

The logic for direct labor variances is similar to that of direct material. You find the total variance for direct labor by comparing the actual direct labor cost of standard direct labor costs.

The overall labor variance could result from any combination of having paid labor rates at equal to, above, or below the standard rates and using more or less direct labor hours than anticipated. The total direct labor variance consists of the labor rate variance and the labor efficiency variance. The labor rate variance reveals the difference between the standard rate and the actual rate for the actual labor hours worked.

The labor efficiency variance compares the standard hours of direct labor that should have been used compared to the actual hours worked to develop the actual output. You should also take the time to perform variance analysis to evaluate spending and utilization for your overhead. Overhead variances are more challenging to calculate and evaluate.

Your variable components may consist of things such as indirect material, and direct labor, and supplies. Fixed overhead may include rent, car insurance, maintenance, depreciation and more.

Because the variable and fixed costs behave in a completely different manner, it stands to reason that properly evaluating the variances between your expected and actual overhead costs must take into account the cost Behavior. Variance analysis for overhead is split between variances related to variable and fixed costs. The goal is to account for the total actual variable overhead by applying the standard amount to work in process and the difference to the appropriate variance account.

Good managers should explore the nature of variances related to their variable overhead. As such, the total variable overhead variance can be split into a variable overhead spending variance and a variable overhead efficiency variance. Your actual fixed factory overhead may show little variation from your budget. This is because of the intrinsic nature of a fixed cost.

There is usually at least a slight variance. When the budgeted expenses are less than the actual expenses, the difference is considered an unfavorable variance because this results in fewer profits for the period. This is typically referred to as coming in over budget. Likewise, when the budgeted expenses are more than the actual expenses, the difference is considered a favorable variance because actual expenses were decreased relative to expected ones resulting in greater net income.

This is usually called coming in under budget.