In the four Variance method following variances are calculated

The spending variance and idle capacity variance are the same as in Three Variance Method. The formula for all of these four variances are given below.

You can click on the image below to [...]]]> This is the last lecture on Variance Analysis

In the four Variance method following variances are calculated

1. Spending Variance
2. Idle Capacity Variance
3. Variable Efficiency Variance
4. Fixed Efficiency Variance.

The spending variance and idle capacity variance are the same as in Three Variance Method. The formula for all of these four variances are given below.

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Whereas in the second approach, which is the topic of this post, separate variances are not calculated.

Note: (First approach is more widely used than the later, and [...]]]> There are couple of approaches for Overhead Variances. In one approach, variances for FIXED and VARIABLE overheads are calculated separately. (click here for explanation and formula of this approach)

Whereas in the second approach, which is the topic of this post, separate variances are not calculated.

Note: (First approach is more widely used than the later, and you will have to refer your own syllabus in order to determine which approach falls within your scope. In some professional courses, students may be asked to learn both methods.)

In Two Variance Method, the following variances are calculated.

• Controllable Variance
• Volume Variance

In Three Variance Method, the following variances are calculated.

• Spending Variance
• Idle Capacity Variance
• Efficiency Variance

In Four Variance Method, the following variances are calculated.

• Spending Variance
• Idle Capacity Variance
• Variable Overhead Efficiency Variance
• Fixed Overhead Efficiency Variance

The formula for Two Variance Method & Three Variance Method are given are available below in this post whereas the formula for Four Variance Method are shall be provided in the next post.

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Fixed Overhead Variances include:

Variable Overhead Variances include:

You can click on the image below for enlarged view. If you [...]]]> In this lecture you will find the formula for the Fixed and Variable Overhead Variances. for labour variances click here & for material variances click here

Fixed Overhead Variances include:

• Fixed Overhead Expenditure Variance
• Fixed Overhead Volume Variance

Variable Overhead Variances include:

• Variable Overhead Expenditure Variance
• Variable Overhead Efficiency Variance

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1) Wage Rate Variance

If the variance is occuring due to the difference in wage rates (Actual v.s Standard), then it shall be called wage rate variance.

2) Labour Efficiency Variance

Efficiency relates to the labour hours. Let us suppose that we produced 100 units (Actual Production). The standard [...]]]> There are two types of variances in case of labour.

1) Wage Rate Variance

If the variance is occuring due to the difference in wage rates (Actual v.s Standard), then it shall be called wage rate variance.

2) Labour Efficiency Variance

Efficiency relates to the labour hours. Let us suppose that we produced 100 units (Actual Production). The standard number of hours to produce ONE unit was set to 2(hours). It means that actual production of 100 units should take 200 hours of labour.

NOW if workers manage to complete 100 units in less than 200 hours, the labour efficiency variance would be favourable.

AND if 100 units take more than 200 hours. the resulting variance would be adverse.

The formula to calculate both labour variances are given below. You can print them after downloading. You can click on the image below to enlarge the view.