What is a spending variance?

A spending variance is the difference between the actual amount of a particular expense and the expected (or budgeted) amount of an expense.

What is spending variance formula?

Actual cost – expected cost = spending variance.

What is revenue and spending variance?

Revenue and spending variances (sometimes called flexible budget variances) are the differences between the flexible budget and the actual results and are caused by differences in the revenue per unit, cost per unit and/or the amount of cost incurred.

What is the spending variance quizlet?

A spending variance is the difference between the actual amount of the cost and how much a cost should have been, given the actual level of activity.

Is spending variance the same as rate variance?

A spending variance, also known as a rate variance, refers to the difference between the actual and budgeted amount of an expense. If a company incurs an $250 expense for utilities in January and expected to incur an $150 expense, there is a $100 unfavorable spending variance.

What is favorable spending variance?

A favorable budget variance means that the actual amount that occurred was better for the company (or organization) than the amount that had been budgeted. This means a favorable budget variance will occur when: Actual sales are greater than budgeted sales.

What does unfavorable spending variance mean?

Unfavorable budget variances refer to the negative difference between actual revenues and what was budgeted. This usually happens when revenue is lower than expected or when expenses are higher than expected.

What is a spending variance and how does an unfavorable spending variance occur?

Variable overhead spending variance is favorable if the actual costs of indirect materials are lower than the standard or budgeted variable overheads. Variable overhead spending variance is unfavorable if the actual costs are higher than the budgeted costs.

What is the purpose of variance analysis?

Variance analysis is used to assess the price and quantity of materials, labour and overhead costs. These numbers are reported to management. While it’s not necessary to focus on every variance, it becomes a signalling mechanism when a variance is salient.

What is the direct materials spending variance quizlet?

A spending variance is calculated by comparing actual costs with the static budget. The direct material quantity variance is the difference between the actual quantity and the standard quantity of materials multiplied by the actual price.

What is the variable overhead spending variance quizlet?

The Variable Overhead Spending Variance is the difference between the actual and the budgeted rates of variable overhead multiplied by actual hours. The Variable Overhead Efficiency Variance is the difference between the actual hours worked and the budgeted hours worked multiplied by the standard overhead rate.

How are activity variances different from revenue and spending variances?

The flexible budget is interposed between the actual results and the static planning budget. The differences between the flexible budget and the static planning budget are activity variances. The differences between the actual results and the flexible budget are the revenue and spending variances.

How do you tell if a variance is favorable or unfavorable?

If revenues were higher than expected, or expenses were lower, the variance is favorable. If revenues were lower than budgeted or expenses were higher, the variance is unfavorable.

How do you know if a variance is favorable or not?

In the field of accounting, variance simply refers to the difference between budgeted and actual figures. Higher revenues and lower expenses are referred to as favorable variances. Lower revenues and higher expenses are referred to as unfavorable variances.

What makes a good variance?

A favorable variance occurs when the cost to produce something is less than the budgeted cost. It means a business is making more profit than originally anticipated. Favorable variances could be the result of increased efficiencies in manufacturing, cheaper material costs, or increased sales.

Who is responsible for overhead spending variance?

But, if there is a change in the fixed overheads, it is usually a significant one. Any significant change in the overheads usually requires the approval of the top management. So, we may not target and call the production department squarely responsible for such a variance.

What are some possible causes of variances?

There are four common reasons why actual expenditure or income will show a variance against the budget.

  • The cost is more (or less) than budgeted. Budgets are prepared in advance and can only ever estimate income and expenditure. …
  • Planned activity did not occur when expected. …
  • Change in planned activity. …
  • Error/Omission.

What are the 3 main sales variances?

All three of these variances can be used to develop insights into the reasons why actual sales differ from expectations.

  • Sales Volume Variance. This is the difference between the actual and expected number of units sold, multiplied by the budgeted price per unit. …
  • Selling Price Variance. …
  • Sales Mix Variance.

How do you find revenue price variance?

Multiply the actual sales price by the number of units sold to find the total actual revenue. For example, if the company built 300 widgets and sold them at $85 each, multiply 300 by $85 to find the actual revenue equals $25,500. Subtract the actual revenue from the budgeted price to find the sales price variance.

How do you calculate sales revenue variance?

Identify the price per unit sold. Subtract the budgeted units sold from the actual units sold. Multiply your answer by the price per unit sold to determine what your sales volume variance is.