Classification and computation of variances.

Classification and computation of variances.

Variances can be classified under the following headings :

(i) Cost variance,

(ii) Sales margin variance,

(iii) Sales value variance,

Cost variance

It represents the difference between the costs actually incurred for production and the costs specified for the same. It is the sum total of following variances:

(a) Direct material cost variance.

(b) Direct wage variance.

(c) Variable overhead variance.

(d) Fixed overhead variance.