How to use the standard cost variance calculator
- Enter the units produced in the period.
- Enter the standard material allowed per unit and its standard price, then the actual material used and the actual price.
- Enter the standard hours per unit and standard labor rate, then the actual hours and the actual rate.
- Read the four variances. A positive amount is adverse, which means actual cost is above standard. A negative amount in parentheses is favorable.
Formula
material price variance = (actual price - standard price) x actual quantity
material usage variance = (actual quantity - allowed quantity) x standard price
labor rate variance = (actual rate - standard rate) x actual hours
labor efficiency variance = (actual hours - allowed hours) x standard rate
Allowed quantity and allowed hours are the standards per unit times the units produced. The material variances add up to actual material cost minus standard material cost, and the labor variances do the same for labor.
Higher price, lower use
A plant makes 1,000 units. The standard is 2 pounds of material at $5.00 and half an hour of labor at $20.00 per unit. It used 1,950 pounds at $5.20 and 520 hours at $19.50. Allowed material is 2,000 pounds and allowed hours are 500.
Material price variance = ($5.20 - $5.00) x 1,950 = $390.00 adverse. Material usage = (1,950 - 2,000) x $5.00 = $250.00 favorable. Labor rate = ($19.50 - $20.00) x 520 = $260.00 favorable. Labor efficiency = (520 - 500) x $20.00 = $400.00 adverse. The total is $280.00 adverse: actual cost of $20,280.00 against $20,000.00 at standard.
Price against use
A price variance says what was paid per unit compared with the standard. A usage or efficiency variance says how much was used compared with what the output allowed. Looking at them separately points to different people and causes: the buyer for price, the production floor for use.
Variances can offset each other, as they do here: buying at a higher price may bring better material that wastes less. A small total can hide large variances that cancel, so read all four.
Where this fits
Standard costing sets the cost you expect and then measures the difference after the fact. It does not say why a variance happened, only where to look. For the same split on the sales side, use the Price, Volume and Mix Variance Calculator. To put the actual costs into the cost of goods sold for the period, use the COGS Calculator, and to cost labor in full, see the Labor Cost Calculator.
Assumptions and limits
- The standards you enter are what the plan expected for one unit.
- Material quantity is measured at the time of use, not at purchase.
- Overhead, scrap sales and idle time variances are not included.
- All amounts are in one currency and shown to the cent.
- The standards, quantities and prices shown when the page opens are examples.
Frequently asked questions
What does adverse mean?
An adverse variance means actual cost was higher than the standard allowed. A favorable one means it was lower. The signs follow the cost, not the profit.
Why is the price variance based on actual quantity?
Because the price difference applies to everything that was actually bought and used. Using the allowed quantity would ignore the extra material already counted in the usage variance.
Can I enter material bought instead of material used?
This page uses the quantity used in production. If you buy more than you use, the price variance on the extra stock belongs to the period in which you buy, which is a separate calculation.
What if one category does not apply?
Enter zero for its standards and actuals. The variances for that category are zero and the total comes from the other.