Cost Variances

In SU7 we considered Budget variances, now we are going to look at Cost variances.

A variance can be defined as:

“the difference between the actual cost and the standard cost”.

If the actual cost is less than the standard cost then the variance is said to be ‘favourable’ (+).

If the actual cost is greater than the standard cost then the variance is said to be ‘adverse’ (-).

Now, if we continue with the standard costs we defined on the preceding page, namely material, labour and overheads, we can look at the relevant variances and how they are calculated.