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The variance is the difference between the expected standard cost and the actual cost incurred. Variance analysis involves breaking down the total variance to explain how much of it is caused by usage of resources being different from the standard and how much of it is caused by the price of resources being different from the standard. 

Each site controller has the responsibility to analyze each month the variance and to explain this variance in order to :

  • Understand the reasons
  • Initiate corrective actions
  • If needed adjust the inventory value and change the semi-standard way of calculation, depending on the origin of the variance.

This process of analysis, whatever the result be a change of costing or not, must be formalized, and archived as a justification of records based on following sheets :

 

 



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Open the sheet "Variance Template" 


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Variable costs variances
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title1. Performance variance D05

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IAC 01.02 - Performance variance
IAC 01.02 - Performance variance

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title2. Variance / CC D45

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IAC 01.02 - VC CC variance
IAC 01.02 - VC CC variance

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title3. Purchase variance D47

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IAC 01.02 - Purchase price variance
IAC 01.02 - Purchase price variance

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title4. Revaluation (D50 + D52)

Each month, the inventory is revaluated with the new standard cost.

Revaluation = [Standard cost (M) – Standard cost (M-1) x Quantity 01/01/M (00h00)

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titleFixed costs variances
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title1. Performance variance E05

The variance is due to a more or less efficient use of the time available to carry out the actual production. It compares the actual time taken to carry out an activity with the standard time allowed and values the difference at the standard.

The analysis is performed with the report ZWPP40A

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title2. Revaluation (E50 + E52)

Each month, the inventory is revaluated with the new standard cost. Revaluation = [Standard cost (M) – Standard cost (M-1) x Quantity 01/01/M (00h00)

There is a revaluation of fixed costs when:

  • there is a modification of the production process
  • in January with the new standard hourly rate
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title4. CC variance (E01 + E90)

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IAC 01.02 - CC variance – Fixed costs part
IAC 01.02 - CC variance – Fixed costs part

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