Variance Analysis Practice Exercise
SeverCo manufactured 25,000 units, using 175,000 square feet of materials, purchased at $1.15 per square foot. This required 425 direct labor hours that cost $17.25 per hour. The standard for production is 8 square feet per unit, at a standard cost of $1.25 per square foot. The labor standard is currently set at 0.032 direct labor hours per unit, at a standard cost of $14.00 per hour.
Price Variance (aka Rate Variance or Spending Variance)
(AP-SP)*AQ
AP = Actual Price for one unit of input (e.g. one pound of material, one hour of labor, etc.)
SP = Standard Price for one unit of input (e.g. one pound of material, one hour of labor, etc.)
AQ= Actual quantity of those inputs (e.g. pounds of materials or hours of labor) needed to produce the number of units that you have actually produced in total.
Quantity Variance (aka Efficiency Variance or Usage Variance)
(AQ-SQ)*SP
AQ= Actual quantity of those inputs (e.g. pounds of materials or hours of labor) needed to produce the number of units that you have actually produced in total.
SQ= Standard expected quantity of those inputs (e.g. pounds of materials or hours of labor) needed to produce the number of units that you have actually produced in total.
SP = Standard Price for one unit of input (e.g. one pound of material, one hour of labor, etc.)
Materials
Actual Price per Sq. Foot
Standard Price Per Sq. Foot
Actual quantity of sq. feet needed to produce your current actual level of production
Standard quantity of sq. feet needed to produce your current actual level of production
Labor
Actual Price per Hour
Standard Price Per Hour
Actual quantity of hours needed to produce your current actual level of production
Standard quantity of hours needed to produce your current actual level of production
Variance Calculations
Direct Materials
Price Variance
(Actual Price	- Standard Price)	* Actual Quantity	= Variance	Favorable/ Unfavorable
Quantity Variance
(Actual Quantity	- Standard Quanity)	* Standard Price	= Variance	Favorable/ Unfavorable
Direct Labor
Price Variance
(Actual Price	- Standard Price)	* Actual Quantity	= Variance	Favorable/ Unfavorable
Quantity Variance
(Actual Quantity	- Standard Quantity)	* Standard Price	= Variance	Favorable/ Unfavorable