Understanding variances

In this lesson

1. 0:00 Understanding variances and their causes
2. 0:14 Material price variance drivers
3. 0:46 Material usage variance drivers
4. 1:27 How variances interconnect with each other
5. 2:31 Variance interdependencies across labour and overhead

About this lesson

This session unpacks why favourable and adverse variances occur, using real-world examples to show how a decision in one area (like buying cheaper materials) can trigger unexpected variances elsewhere (like labour inefficiency). Understanding these relationships is essential for PM and APM, where you need to move beyond calculating variances to explaining what actually drove them. The video walks you through material price and usage variances first, then extends to labour rate and efficiency variances, showing how each can be linked. You'll see practical scenarios: higher-quality materials cost more upfront but reduce waste; paying higher wages might boost productivity. The key insight is that variances rarely exist in isolation—a cost saving in materials might mask quality issues that create labour problems downstream, ultimately affecting overhead costs. Mastering these interdependencies will strengthen your case study answers and help you think like a management accountant, not just a calculator.

Duration: 4m