Variance (accounting)


Variance (accounting)

In budgeting (or management accounting in general), a variance is the difference between a budgeted, planned or standard amount and the actual amount incurred/sold. Variances can be computed for both costs and revenues.

The concept of variance is intrinsically connected with planned and actual results and effects of the difference between those two on the performance of the entity or company.

Types of variances

Variances can be divided according to their effect or nature of the underlying amounts.

When effect of variance is concerned, there are two types of variances:
*When actual results are better than expected results given variance is described as favourable variance. In common use favourable variance is denoted by the letter F - usually in parentheses (F).
*When actual results are worse than expected results given variance is described as adverse variance, or unfavourable variance. In common use adverse variance is denoted by the letter A or the letter U - usually in parentheses (A).

The second typology (according to the nature of the underlying amount) is determined by the needs of users of the variance information and may include e.g.:
*Variable cost variances
**Direct material variances
**Direct labour variances
**Variable production overhead variances
*Fixed production overhead variances
*Sales variances

Variance Analysis

Variance analysis, in budgeting (or management accounting in general), is a tool of budgetary control by evaluation of performance by means of variances between budgeted amount, planned amount or standard amount and the actual amount incurred/sold. Variance analysis can be carried for both costs and revenues.

ee also

* Budgeting in Non-profit organization
* Standard budget
* Flexible budget
* Rolling budget
* Activity-based budgeting (ABB)
* Controllable items
* Non-controllable items
* Standards
* Motivation
* Performance evaluation
*direct material total variance
*direct material price variance
*direct material usage variance


Wikimedia Foundation. 2010.

Look at other dictionaries:

  • variance — [ver′ē əns, var′ē əns] n. [OFr < L variantia < L varians, prp. of variare, to VARY] 1. the quality, state, or fact of varying or being variant; a changing or tendency to change 2. degree of change or difference; divergence; discrepancy 3.… …   English World dictionary

  • accounting — /euh kown ting/, n. 1. the theory and system of setting up, maintaining, and auditing the books of a firm; art of analyzing the financial position and operating results of a business house from a study of its sales, purchases, overhead, etc.… …   Universalium

  • Variance — A measure of dispersion of a set of data points around their mean value. The mathematical expectation of the squared deviations from the mean. The square root of the variance is the standard deviation. The New York Times Financial Glossary * * *… …   Financial and business terms

  • variance — Statistical term that quantifies the dispersion of data such as rates or prices around the mean. For example, highly volatile rates are rates that are sometimes high above the mean and sometimes way below the mean. Less volatile rates are… …   Financial and business terms

  • variance — Civil and criminal practice. A discrepancy or disagreement between two instruments or two pleading allegations in the same cause, which should by law be entirely consonant. Thus, if the evidence adduced by the plaintiff does not agree with the… …   Black's law dictionary

  • Management accounting — Accountancy Key concepts Accountant · Accounting period · Bookkeeping · Cash and accrual basis · Cash flow management · Chart of accounts  …   Wikipedia

  • Direct material total variance — In variance analysis (accounting) direct material total variance is the difference between the actual cost of actual number of units produced and its budgeted cost in terms of material. Direct material total variance can be divided into two… …   Wikipedia

  • Direct material usage variance — In variance analysis (accounting) direct material usage (efficiency, quantity) variance is the difference between the standard quantity of materials that should have been used for the number of units actually produced, and the actual quantity of… …   Wikipedia

  • Direct material price variance — In variance analysis (accounting) direct material price variance is the difference between the standard cost and the actual cost for the actual quantity of material used or purchased. It is one of the two components (the other is direct material… …   Wikipedia

  • Cost accounting — Accountancy Key concepts Accountant · Accounting period · Bookkeeping · Cash and accrual basis · Cash flow management · Chart of accounts  …   Wikipedia


We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.