Standard Costing Variance Analysis & Calculator

Standard Costing Variance Analysis

From Material Price to Final Profit Variance — Accountability & Prevention

Why Standard Costing & Variance Analysis Matters

Standard costing sets predetermined benchmarks for materials, labour, and overhead, empowering finance teams to measure performance gaps in real time. By categorizing variances—material, labour, variable/fixed overhead, sales price/volume, and overall profit—organizations can pinpoint exactly where and why costs deviate from expectations. Clear accountability (e.g., purchasing managers own price variances, production managers own usage variances) ensures prompt, targeted corrective actions. Proactive strategies—like competitive bidding, lean manufacturing practices, incentive-based pay, and zero-based budgeting—help prevent most unfavourable variances before they occur. Embedding variance dashboards and cross-functional root-cause workshops cements a culture of continuous improvement aligned with corporate financial goals.

Key Variances & Responsible Owners

Material Variances

Price Variance: (AP – SP) × AQ — Purchasing Manager

Usage Variance: (AQ – SQ) × SP — Production Manager

Labour Variances

Rate Variance: (AR – SR) × AH — HR Manager / Payroll Supervisor

Efficiency Variance: (AH – SH) × SR — Production Supervisor

Overhead Variances

VOH Spending: (AVOR – SVOR) × AH — Cost Accountant

VOH Efficiency: (AH – SH) × SVOR — Industrial Engineer

FOH Spending: AFH – BFH — Plant Manager & CFO

FOH Volume: (AV – BV) × FR/unit — Operations Director

Sales & Profit Variances

Sales Price: (ASP – SSP) × AV — Sales Manager

Sales Volume: (AV – BV) × CM/unit — Demand Planning Team

Profit Variance: AP−BP — CFO

Proactive Prevention Strategies

• Competitive bidding & long-term contracts for stable material pricing
• Lean manufacturing (5S, Kaizen) and SOPs to reduce scrap and usage variances
• Market-based wage benchmarking and incentive schemes to optimize labour costs
• Zero-based budgeting and rolling forecasts to control fixed overheads
• Dynamic pricing tools and contractual price escalators for sales variances
• Integrated dashboards and cross-functional root-cause workshops for continuous improvement

Interactive Variance Calculator

Material – Actual Price (AP) and Standard Price (SP) per Unit:

Material – Actual Quantity (AQ) and Standard Quantity (SQ):

Labour – Actual Rate (AR), Standard Rate (SR) & Actual Hours (AH), Standard Hours (SH):

Variable OH – Actual Rate (AVOR), Standard Rate (SVOR), AH, SH:

Fixed OH – Actual FOH (AFH), Budgeted FOH (BFH), Actual Volume (AV), Budgeted Volume (BV), FOH Rate/unit (FR):

Sales – Actual Selling Price (ASP), Standard Selling Price (SSP), Actual Volume (AV), Budgeted Volume (BV), Contribution/unit (CM):

Profit – Actual Profit (AP) & Budgeted Profit (BP):

Results:

Material Price Var:

Material Usage Var:

Labour Rate Var:

Labour Eff Var:

VOH Spending Var:

VOH Eff Var:

FOH Spending Var:

FOH Volume Var:

Sales Price Var:

Sales Volume Var:

Profit Var:

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