What is the cost variance and how is the cost variance rate calculated

The cost variance is the difference between the actual amount of costs incurred and the standard costs in a standard cost control system. By comparing the actual amount with the standard cost, we find out the difference and the reason for the difference, which is the basis for evaluating the cost reduction and improving the company's future business activities. The standard cost includes the standard cost of direct materials, the standard cost of direct labor and the standard cost of manufacturing, corresponding to the type of standard cost, and the cost difference is also divided into direct material cost difference, direct labor cost difference and manufacturing cost difference.

Cost variances can be divided into the following types according to different criteria:

1) Difference in dosage and ** difference.

Usage variance reflects the difference in cost due to the inconsistency between the actual consumption of factors such as direct materials, direct labor, and variable manufacturing costs compared to the standard consumption. It is calculated as follows:

Usage Difference = Standard** (Actual Usage - Standard Usage).

Variance reflects cost differences due to inconsistencies between the actual and standard levels of factors such as direct materials, direct labor, and variable manufacturing expenses. It is calculated as follows:

**Difference = (Actual**One Standard**) Actual usage.

2) Pure difference vs. mixed difference.

Theoretically, any type of difference needs to be calculated on the assumption that when one factor changes, other factors are fixed on a certain basis. Fixing other factors on the basis of the criterion, the calculated difference is a pure difference.

The difference that is the opposite of pure difference is mixed difference. Mixed differences, also known as joint differences, refer to the differences left over from the total differences after deducting all the pure differences.

3) Favorable and unfavorable differences.

Favorable variance refers to the difference in savings due to the actual cost being lower than the standard cost. Adverse variances are defined as overspending differences due to actual costs being higher than standard costs. But the pros and cons here are relative, and it is not that the greater the difference in advantages, the better.

For example, you can't blindly pursue a favorable difference in cost at the expense of quality.

4) Controllable and uncontrollable differences.

Controllable differences refer to differences that are formed in connection with the degree of subjective effort, also known as subjective differences. It's the focus of cost control.

Uncontrollable differences refer to differences that have little to do with the degree of subjective effort and are mainly affected by objective reasons, also known as objective differences.

The cost variance is the amount of the difference between the actual product cost and the standard cost.

Cost differences can be divided into the following categories according to different criteria:

1) Spreads.

Heterogeneous and unfavorable differences.

Favorable difference: the difference in savings between the actual cost and the standard cost, which is generally expressed by f;

Unfavorable variance: The amount of the difference in overspending where the actual cost is higher than the standard cost, generally expressed in u.

2) **Differences and dosage differences.

Discrepancies: Differences due to actual deviations from the standard;

Dosage Variance: A difference in the actual dosage that deviates from the standard dosage.

What does the material cost variance mean?

How to calculate the <> cost variance rate:

Cost variance rate = (opening cost variance + current month warehousing cost variance) round branch (opening plan cost + current month's warehousing plan cost) 100%.

The variance rate is the ratio of the variance to the planned cost, which is usually expressed as a percentage. Cost variance is the difference between actual and planned costs. A positive number indicates the overrun differential rate, and a negative number indicates the savings differential rate.

How to calculate the <> cost variance rate:

Cost difference rate = (the difference between the beginning of the period and the cost of warehousing + the difference of the warehousing cost of the month) (the initial planned cost of the lead in the current period + the planned cost of the current month) 100%.

The cost variance rate is the ratio of the cost variance amount to the planned cost, which is usually expressed as a percentage. The cost variance is the difference between the actual cost and the planned cost. A positive number indicates the overrun differential rate, and a negative number indicates the savings differential rate.

One. Standard cost is a costing method. This method is called the standard cost system, in which not only the overhead costs are projected, but also the direct materials and direct labor, etc., are calculated according to the projected figures.

Two. The actual cost is the purchase cost, processing cost and other costs incurred by the enterprise to achieve the current location and state when acquiring the property.

1) The nature of the standard cost: The standard cost refers to the cost of manufacturing the product under normal and efficient operation conditions, rather than the actual cost incurred. In a typical actual cost system, indirect costs are allocated to the product at a predetermined rate, whereas the standard cost system is treated in the same way.

The main difference between the two methods is that the calculation methods for direct materials and direct labor are different.

The actual cost system uses the amount of direct costs actually incurred for each product;

The standard cost system adopts the standard unit cost generated from the direct materials and direct personnel, and some accounting systems stipulate that inventory is recorded at standard cost, and some accounting systems stipulate that inventory is recorded at both standard cost and actual cost.

2) Comparison between standard cost and actual cost: As far as direct materials are concerned, the standard cost of direct materials is the product of the amount of standard materials required to manufacture a unit product and the ** (standard**) of these materials under normal circumstances. The same principle applies to determining the criteria for direct human costs.

The standard direct labor cost per unit product is the product of the standard hourly rate of wages and standard working hours. The standard direct labor cost of a batch of products is the product of the standard direct labor cost of a unit product and the number of products. In the standard cost system, a pre-specified overhead rate is also used, but the overhead of a batch of products is the product of the pre-specified overhead rate and the standard quantity.

Except for this difference, the treatment of overhead costs is the same for both the actual cost system and the standard cost system. Standard costs can be applied in both batch and step-by-step methods.

The difference between the standard cost and the actual cost is known as the difference. Actual costs exceeding standard costs are called deficits or deficits, and vice versa, they are called surpluses, or surplus differences.

When the actual cost is greater than the standard cost, the amount of the overrun is an unfavorable variance, which is generally expressed as a positive number; When the actual cost of closed-burn pants is less than the standard cost, the amount of savings is a favorable difference, which is generally expressed as a negative number. From the content of the differences, the cost differences include direct material cost differences, direct labor cost differences and manufacturing cost differences. From the perspective of cost characteristics, the cost difference has variable cost difference and fixed cost difference.

The variable cost difference is divided into ** difference and quantity difference according to the reason for its formation. The purpose of calculating the cost difference is to analyze the origin of its formation, and then take effective measures to control it, consolidate the favorable difference, eliminate the adverse difference, and ultimately reduce the product cost and improve the economic efficiency.

Differential costs

The difference cost of Guangchun stool refers to the difference between the estimated costs of Zhisenhuai between different schemes.

In a narrow sense, the differential cost of a partner refers to the cost difference due to the difference in the utilization degree of production capacity.

Cost difference refers to the difference in cost between different products or services in the same production activity or manufacturing process.

Cost variances can be divided into the following types:

Difference between Actual Cost and Standard Cost: Standard cost is the expected cost calculated based on the previously determined criteria, while actual cost is the cost that was actually incurred. Cost variances can be calculated by comparing actual costs to standard costs to assess whether actual costs are in line with expected costs or exceed budget.

The difference between direct cost and indirect cost: direct cost is a cost that can be directly associated with a specific product or service, such as the cost of raw sail materials and direct labor costs; Indirect costs are costs that are shared with multiple products or services, such as indirect labor costs and indirect material costs. Cost variances can be compared to the difference between actual direct costs and standard direct costs and actual indirect costs to standard indirect costs.

Difference between fixed and variable costs: Fixed costs remain the same within certain ranges, such as rent and management salaries; Variable costs vary with the volume of production, such as raw materials and direct labor. Cost variances can be calculated by comparing the difference between the actual fixed costs and the standard fixed costs, and the actual variable costs with the standard variable costs.

By analyzing cost variances, managers can identify problems in the production process and opportunities for improvement. They can take steps to correct unanticipated cost variances and optimize production efficiency and cost control to improve the company's operating performance. <>

The key reasons why it's important to understand and analyze cost variances

Cost control: By analyzing cost variances, managers can identify the difference between actual and budgeted costs and find out what caused the variance. This can give them information about what costs are out of budget, why they are out of budget, and how to control them.

They can take appropriate actions, such as reducing unnecessary expenses, optimizing resource utilization, and process efficiency, to control costs and improve profitability.

Performance evaluation: By analyzing cost variances, managers can evaluate the performance and efficiency of a business unit or department. They can understand the deviation between the actual cost and the standard cost for each unit or department, and evaluate the performance of managers and teams in terms of cost control and resource management.

This helps identify areas of good and poor performance and take appropriate action to improve business performance.

Decision support: Analyzing cost variances can also provide managers with information for decision support. A thorough assessment of cost variances can reveal obstacles to target cost achievement, unbalanced benefits, or new opportunities.

Such an analysis can help managers consider cost factors more comprehensively when making decisions and choose the best decision-making path.

Continuous improvement: Through the analysis of cost variances, managers can identify problems and bottlenecks in business processes and find opportunities for improvement. They can identify the root cause of cost variances and take corrective action to optimize resource utilization and efficiency, improve business quality and performance.

The material cost variance rate is also known as the "material cost variance allocation rate". Refers to the ratio of the material cost variance to the material plan cost. It is calculated as follows:

Material Cost Variance Allocation Rate = (Balance Material Cost Difference at the Beginning of the Month + Difference in Revenue Material Cost of the Month) (Planned Cost of Balance Materials at the Beginning of the Month + Planned Cost of Revenue Materials of the Month) * 100%.

The material cost variance rate is also known as the "material cost variance allocation rate". Refers to the ratio of material component or wheel cost variance to material planning cost. It is calculated as follows:

Material cost variance calendar reallocation rate = (material cost difference at the beginning of the month + material cost difference in this month's revenue) (planned cost of materials at the beginning of the month + planned cost of this month's revenue materials) * 100%.

Cost differences generally include the difference between the planned cost and the actual cost, the difference between the actual cost of the current period and the actual cost of the previous period, the difference between the actual cost of the current period and the actual cost of the same period of the previous year, the difference between the actual cost of the current period and the historical advanced cost level of the enterprise and the advanced cost level of the same industry. In view of the differences caused by different reasons, the analysis of the measures to reduce the production cost has been taken to reduce the production cost. There are many methods of cost variance analysis (such as comparative analysis, ratio analysis, factor analysis, etc.).