Calculation and interpretation of variances: materials (price and usage), labour (efficiency and rate), sales (volume and price)
A variance measures the gap between what a business planned to spend or earn and what actually happened. Accountants calculate six key variances covering materials, labour, and sales.
Formula
Materials Price Variance = (Standard Price − Actual Price) × Actual Quantity
Real World
Cadbury planned to buy cocoa at £2,000 per tonne but a global shortage pushed the price to £2,400. The £400-per-tonne adverse materials price variance across thousands of tonnes significantly raised production costs for Dairy Milk bars.
Exam Focus
Always label each variance as favourable (F) or adverse (A) — unlabelled variances lose marks even if the number is correct.
Essay Framework
Use PEEL to structure every paragraph. Tap each step for guidance and an example.
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