A performance criterion that recognizes inefﬁciencies that are likely to result from such factors as lost time, spoilage, or waste.
A set of performance measures, both ﬁnancial and nonﬁnancial, that is used to evaluate an organization’s or a segment of an organization’s performance.
Budget variance (two-variance method)
The difference between budgeted factory overhead at the capacity attained and the actual factory overhead incurred.
Reﬂects an under-or overabsorption of ﬁxed costs by measuring the difference between actual hours worked, multiplied by the standard over-head rate, and the budget allowance based on actual hours worked.
The amount by which the actual factory overhead costs differ from the standard overhead costs for the attained level of production.
The difference between overhead applied (standard hours at the standard rate) and the actual hours worked multiplied by the standard rate; indicates the effect on ﬁxed and variable overhead costs when actual hours worked are more or less than standard hours allowed for the production volume.
The difference when actual costs are less than standard costs.
Fixed overhead budget variance
A measure of the difference between the actual ﬁxed overhead and the budgeted ﬁxed overhead.
Fixed overhead volume variance
A measure of the difference between budgeted ﬁxed overhead and applied ﬁxed overhead.
The analysis of ﬁxed and variable factory overhead costs based on the computation of a spending variance and an efﬁciency variance for variable costs and a budget variance and a volume variance for ﬁxed costs.
A performance criterion that reﬂects maximum efﬁciency, with no allowance for lost time, waste, or spoilage.
Labor cost standard
A predetermined estimate of the direct labor cost required for a unit of product based on estimates of the labor hours required to produce a unit of product and the cost of labor per unit.
Labor efﬁciency (usage) variance
The difference between the actual number of direct labor hours worked and the standard hours for the actual level of production at the standard labor rate.
The process that occurs when employees become more efﬁcient at complex production processes the more often they perform the task.
Management by exception
As relates to variance analysis, it is the practice of examining signiﬁcant unfavorable or favorable differences from standard.
Materials cost standard
A predetermined estimate of the cost of the direct materials required for a unit of product.
Materials price variance
The difference between the actual unit cost of direct materials and the standard unit cost, multiplied by the actual quantity of materials used.
Materials quantity (usage) variance
The difference between the actual quantity of direct materials used and the standard quantity for the actual level of production at standard price.
Nonﬁnancial performance measures
These are performance measures that are used to evaluate operations, but that are not expressed in dollars, such as the percentage of defective units produced.
In the context of variance analysis, refers to the cost of materials or the hourly wage rate for direct labor.
The difference between the actual factory overhead for variable costs and the actual hours multiplied by the standard variable rate. See also Budget variance.
A norm or criterion against which performance can be measured.
Standard cost accounting
A method of accounting for manufacturing costs that can be used in conjunction with either a job order or process cost accounting system. Standard costing makes it possible to determine what a product should have cost as well as what the product actually cost.
The analysis of factory overhead costs based on the computation of efﬁciency, capacity, and budget (spending) variances.
The difference when actual costs exceed standard costs.
The quantity of materials used or the number of direct labor hours worked.
Variable overhead efﬁciency variance
A measure of the change in the variable overhead consumption that occurs because of efﬁcient or inefﬁcient use of the cost allocation base, such as direct labor hours.
Variable overhead spending variance
A measure of the effect of differences in the actual variable overhead rate and the standard variable overhead rate
The difference, during an accounting period, between the actual and standard or budgeted costs of materials, labor, and overhead.
The difference between budgeted ﬁxed overhead and the ﬁxed overhead applied to work in process; the result of operating at a level of production different from the standard, or normal, level.