Variance Analysis
The deviation of the standard cost or profit or sales from the actual cost or profit or sales is called Variance. Variances may be favorable and Unfavorable depending on whether the actual cost is less or more than the standard cost.
Favorable Variance:
When the actual cost is less than the standard cost or Actual profit / Sales is more than the standard profit / Sales is called Favorable Variance.
Unfavorable Variance:
When the actual cost is more than the standard cost or Actual profit / Sales is less than the standard profit / Sales is called Unfavorable Variance.
According to Accounting Language, unfavorable or Adverse variance means debit variance and favorable or positive Variance means credit Variance.
Controllable Variance
A Variance is said to be controllable if it can be identified as the primary responsibility of a specific person or department. For example-excess sage of materials, excess time taken by a worker.
Uncontrollable Variance
A Variance is said to be uncontrollable if the factors beyond the control of concern person or department. For example- wage rate increased on account of strike, Government restrictions.
