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Information about Variance Analysis (accounting)

In budgeting (or management accounting in general), a variance is the difference between a budgeted, planned or standard amount and the actual amount incurred/sold. Variances can be computed for both costs and revenues.

The concept of variance is intrinsically connected with planned and actual results and effects of the difference between those two on the performance of the entity or company.

Types of variances

Variances can be divided according to their effect or nature of the underlying amounts.

When effect of variance is concerned, there are two types of variances:
  • When actual results are better than expected results given variance is described as favourable variance. In common use favourable variance is denoted by the letter F - usually in parentheses (F).
  • When actual results are worse than expected results given variance is described as adverse variance, or unfavourable variance. In common use adverse variance is denoted by the letter A or the letter U - usually in parentheses (A).
The second typology (according to the nature of the underlying amount) is determined by the needs of users of the variance information and may include e.g.:

Variance Analysis

Variance analysis, in budgeting (or management accounting in general), is a tool of budgetary control by evaluation of performance by means of variances between budgeted amount, planned amount or standard amount and the actual amount incurred/sold. Variance analysis can be carried for both costs and revenues.

See also

For the rental car company, see .


Budget (from french bougette) generally refers to a list of all planned expenses and revenues. A budget is an important concept in microeconomics, which uses a budget line to illustrate the trade-offs
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Management accounting is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis in making informed business decisions that would allow them to be better equipped in their management and control functions.
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Direct Material Cost Variance

Material Cost Variance can be divided into :

- Price Variance

- Usage Variance

Usage Variance can be further sub-divided into :

- Mix Variance

- Yield Variance
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Sales Variance is the difference between actual sales and budget sales. Total sales variance comprises two variances.
  1. Sales Price Variance
  2. Sales Volume Variance


Sales Volume Variance is further sub-divided into two variances.
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Management accounting is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis in making informed business decisions that would allow them to be better equipped in their management and control functions.
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For the rental car company, see .


Budget (from french bougette) generally refers to a list of all planned expenses and revenues. A budget is an important concept in microeconomics, which uses a budget line to illustrate the trade-offs
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A non-profit organization (abbreviated "NPO", also "non-profit" or "not-for-profit") is a legally constituted organization whose primary objective is to support or to actively engage in activities of public or private interest without any commercial or monetary profit purposes.
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Fixed and Variable cost components. Standard budgets present information at only one level of activity and do not provide information on how the variable portion of the costs would affect the budget.
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standardization or standardisation can have several meanings depending on its context. Common use of the word standard implies that it is a universally agreed-upon set of guidelines for interoperability.
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Motivation is a reason or set of reasons for engaging in a particular behavior, especially human behavior as studied in psychology and neuropsychology. The reasons may include basic needs (e.g.
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The phrase performance evaluation can refer to a variety of techniques or academic fields, depending on the area:
  • in education

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In variance analysis (accounting) direct material total variance is the difference between the actual cost of actual number of units produced and its budgeted cost in terms of material.
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In variance analysis (accounting) direct material price variance is the difference between the standard cost and the actual cost for the actual quantity of material used or purchased.
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In variance analysis (accounting) direct material usage variance is the difference between the standard quantity of materials that should have been used for the number of units actually produced, and the actual quantity of materials used, valued at the standard cost per unit of
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