Question

Organizations determine standard costs for labor, materials, and overhead. Discuss variances for labor, materials, and overhead. How do these variances differ from the standard costs? How is each computed? Why is calculating variances useful to an organization?

Answer 1

Labor variance. A labor variance arises when the actual expense associated with a labor activity varies (either better or worse) from the expected amount. ... Labor rate variance. Measures the difference between the actual and expected cost per hour, multiplied by the actual hours incurred

Material variance has two definitions, one relating to direct materials and the other to the size of a variance. They are: Related to materials. This is the difference between the actual cost incurred for direct materials and the expected (or standard) cost of those materials

Overhead cost variance can be defined as the difference between the standard cost of overhead allowed for the actual output achieved and the actual overhead cost incurred. In other words, overhead cost variance is under or over absorption of overheads.

A standard cost is an estimated expense that normally occurs during the production of a product or performance of a service. In other words, this is theoretically the amount of money a company will have to spend to produce a product or perform a service under normal conditions.

Variance is the amount paid for labour , materials and overheads which may be lower or higher than standard costs

Direct labor price variance = (SR – AR) x AH

Direct labor quantity variance = SR x (SH – AH)

otal direct labor variance = (SR x SH) – (AR x AH)

standard rate (SR) and the actual rate (AR) Actual hours worked (AH):

Material Cost Variance = Standard Cost – Actual Cost

MPV = (Standard Price – Actual Price) x Actual Quantity

MUV = (Standard Quantity – Actual Quantity) x Standard Price

Overhead variance = Overhead applied – Actual overhead

Overhead applied = Overhead application rate x SH(standard Hours)

It helps to  assist with managing budgets by controlling budgeted versus actual costs. ... Variances between planned and actual costs might lead to adjusting business goals, objectives or strategies.This analysis is used to maintain control over a business

I hope my workings are enough to understand

Thanks in advance for giving me positive ratings

for any clarification feel free to comment on it

May God bless you and have a wonderful day