Cost variance definition - AccountingTools

A cost variance is the difference between the cost actually incurred and the budgeted or planned amount of cost that should have been ... AccountingTools CPECourses CPECourses CPELogIn HowtoTakeaCourse StateCPERequirements Books CollegeTextbooks AccountingBooks FinanceBooks OperationsBooks Articles Articles TopicsIndex SiteArchive Podcast AccountingBestPractices PodcastIndex PodcastSummary Dictionary FAQs About About Contact EnvironmentalCommitment Home AccountingTools CPECourses/CPECoursesCPELogInHowtoTakeaCourseStateCPERequirements Books/CollegeTextbooksAccountingBooksFinanceBooksOperationsBooks Articles/ArticlesTopicsIndexSiteArchive Podcast/AccountingBestPracticesPodcastIndexPodcastSummary Dictionary/ FAQs/ About/AboutContactEnvironmentalCommitment Home/ AccountingTools AccountingCPECourses&Books Articles AccountingTools CPECourses/CPECoursesCPELogInHowtoTakeaCourseStateCPERequirements Books/CollegeTextbooksAccountingBooksFinanceBooksOperationsBooks Articles/ArticlesTopicsIndexSiteArchive Podcast/AccountingBestPracticesPodcastIndexPodcastSummary Dictionary/ FAQs/ About/AboutContactEnvironmentalCommitment Home/ WhatisaCostVariance?Acostvarianceisthedifferencebetweenthecostactuallyincurredandthebudgetedorplannedamountofcostthatshouldhavebeenincurred.Costvariancesaremostcommonlytrackedforexpenselineitems,butcanalsobetrackedatthejoborprojectlevel,aslongasthereisabudgetorstandardagainstwhichitcanbecalculated.Thesevariancesformastandardpartofmanymanagementreportingsystems.Somecostvariancesareformalizedintostandardcalculations.Thefollowingareexamplesofvariancesrelatedtospecifictypesofcosts:DirectmaterialpricevarianceFixedoverheadspendingvarianceLaborratevariancePurchasepricevarianceVariableoverheadspendingvarianceThereisanunfavorablevariancewhentheactualcostincurredisgreaterthanthebudgetedamount.Thereisafavorablevariancewhentheactualcostincurredislowerthanthebudgetedamount.Whetheravarianceendsupbeingpositiveornegativeispartiallyduetothecarewithwhichtheoriginalbudgetwasassembled.Ifthereisnoreasonablefoundationforabudgetedcost,thentheresultingvariancemaybeirrelevantfromamanagementperspective.Costvariancesareusuallytracked,investigated,andreportedonbyacostaccountant.Thispersondeterminesthereasonwhyavarianceoccurredandreportstheresultstomanagement,possiblyalongwitharecommendationforchangingoperationstoreducethesizeofthevariance(ifunfavorable)inthefuture.Itisnotalwaysusefultoburymanagementwithananalysisofeverypossiblecostvariance.Instead,thecostaccountantshoulddeterminewhichvariancesarelargeenoughtobeworththeirattention,orifthereissomeactiontobetakentoimprovethesituation.Thus,acostvariancereportshouldonlyincludeafewitemseachmonth,preferablywithrecommendedactionstobetaken.Notallunfavorablevariancesarebad.Spendingmoremoneyinoneareamaycreateafavorablevariancesomewhereelse.Forexample,itmightbenecessarytospendtwiceasmuchonpreventivemaintenancetoavoidamuchgreatertotalexpenseassociatedwithreplacingfixedassetsmorefrequently.Thus,itissometimesbettertoreviewcostvariancesfromthelevelofanentiredepartment,facility,orproductline,ratherthanatamoredetailedlevel.Thishigherlevelofanalysisgivesmanagersroominwhichtoallocatefundsinamannerdesignedtoimprovetotalprofits.RelatedCoursesCostAccountingFundamentals  Independentdemanddefinition Howtoconvertcashbasisto... CPECourses/CPECoursesCPELogInHowtoTakeaCourseStateCPERequirements Books/CollegeTextbooksAccountingBooksFinanceBooksOperationsBooks Articles/ArticlesTopicsIndexSiteArchive Podcast/AccountingBestPracticesPodcastIndexPodcastSummary Dictionary/ FAQs/ About/AboutContactEnvironmentalCommitment Home/ AccountingTools CollegeTextbooksAccountingBooksFinanceBooksOperationsBooks Sendusyoure-mailaddresstoreceivemonthlycoursediscounts * Thankyou! Copyright2021