The reasons for cost variances
1. General causes of variances
a. Inappropriate standard. Incorrect or out of date standards could
have be used which will not reflect current conditions. For example,
a material price standard may have been wrong if an old price was
used or the wrong type of material was priced.
b. Inaccurate recording of actual costs. For example, if time sheets
are filled in incorrectly this may lead to variances.
c. Random events. Examples include unusual adverse weather
conditions or a flu epidemic. These may cause additional unforeseen
costs.
d. Operating inefficiency. If the variance is not caused by
inappropriate standards, inaccurate recording or random events,
then it must be due to operating efficiency. The operating efficiency
may be due to controllable or uncontrollable factors.
Variance Favourable Adverse
Material price Unforeseen discounts Price increase
received Careless purchasing
More care taken in Change in material
purchasing standard
Change in material
standards
Material usage Material used of higher Defective material
quality than standard Excessive waste
More effective use made Theft
of material Stricter quality
Errors in allocating control
material to jobs Errors in allocating
material to jobs
Labour rate Use of apprentices or Wage rate increase
other workers at a rate Use of higher grade
of pay lower than labour
standard
Labour efficiency Output produced more Lost time in excess of
quickly than expected standard allowed.
because of work Output lower than
motivation, better standard set because
quality of equipment or of deliberate
materials, or better restriction, lack of
methods. training, or sub-
Errors in allocating time standard material
to jobs used.
Errors in allocating
time to jobs
Overhead Savings in cost incurred Increase in cost of
expenditure services used
More economical use of Excessive use of
services services
Change in type of
services used
Overhead Volume Labour force working Labour force working
efficiency more efficiently ( less efficiently
favourable labour (adverse labour
efficiency variance) efficiency variance)
Overhead volume Labour force working Machine breakdown,
capacity overtime strikes, labour
shortages
