Calculating variances

In this lesson

1. 0:00 Introduction to Variance Analysis
2. 0:12 Material Price and Usage Variances
3. 2:45 Calculating Total Material Variance
4. 5:00 Direct Material Price Variance
5. 6:47 Direct Material Usage Variance
6. 8:47 Labour Rate and Efficiency Variances
7. 11:17 Calculating Total Labour Variance
8. 13:50 Variable Overhead Expenditure and Efficiency
9. 18:43 Fixed Overhead Variances Under Marginal Costing
10. 22:39 Fixed Overhead Volume Variance
11. 25:29 Fixed Overhead Capacity and Efficiency Variances
12. 31:35 Sales Price and Volume Variances

About this lesson

Variances measure the difference between what you expected to spend or earn and what actually happened, helping you understand business performance and identify where things went wrong. The lesson covers variable cost variances (materials and labour), fixed and variable overhead variances, and sales variances. For materials, you'll calculate price variance (did we pay more or less per unit?) and usage variance (did we use more or less material than expected?). Labour follows the same logic: rate variance (higher or lower hourly rate?) and efficiency variance (faster or slower workforce?). You'll also learn how fixed overhead variances differ under marginal costing versus absorption costing, including capacity, efficiency, and volume variances. Finally, you'll see how to break down sales performance into price variance and volume variance. Throughout, the lesson uses worked examples with step-by-step calculations so you can see exactly how to apply the formulas. A key principle: always flex your budget to actual activity levels before calculating variances. The calculations are consistent across all variance types—compare actual to expected, multiply by standard rates, and interpret whether the result is favourable or adverse. By the end, you'll be confident tackling variance questions in your exams and understanding what the numbers tell you about operational performance.

Duration: 37m