Costing & FinanceFree referencePDF, Excel, Word exportDiscrete Manufacturing

Manufacturing Cost Variance Types Reference

Variance analysis only helps when everyone uses the same names and formulas. This table lists the common standard cost and revenue variances, how each is calculated, which team usually owns it and the first thing to check when it moves.

Download:

Variance	Group	Formula	Usual owner	First thing to check
Purchase price variance	Material	(Actual price - Standard price) x Actual quantity purchased	Purchasing	Stale standard cost, freight or tariff changes, wrong UoM on the PO
Material usage (quantity) variance	Material	(Actual quantity used - Standard quantity allowed) x Standard price	Production	Scrap, BOM yield assumptions, unreported scrap, backflush errors
Material mix variance	Material	(Actual mix quantity - Standard mix quantity) x Standard price	Production, engineering	Substitute materials issued instead of the BOM component
Material yield variance	Material	(Actual total input - Standard input for actual output) x Standard average price	Production	Process yield versus routing and BOM assumptions
Labor rate variance	Labor	(Actual rate - Standard rate) x Actual hours	Production, HR	Overtime premium, wrong labor grade, rate table out of date
Labor efficiency variance	Labor	(Actual hours - Standard hours allowed) x Standard rate	Production	Routing times, setup, rework hours booked to the job
Labor mix variance	Labor	(Actual mix hours - Standard mix hours) x Standard rate	Production	Higher skill grade working on lower grade operations
Variable overhead spending variance	Overhead	Actual variable overhead - (Actual hours x Standard variable rate)	Plant manager	Supplies, utilities and indirect spend versus budget
Variable overhead efficiency variance	Overhead	(Actual hours - Standard hours allowed) x Standard variable rate	Production	Same driver as labor efficiency
Fixed overhead spending variance	Overhead	Actual fixed overhead - Budgeted fixed overhead	Plant manager, finance	Rent, depreciation, salaried indirect cost versus budget
Fixed overhead volume variance	Overhead	Budgeted fixed overhead - (Standard hours allowed x Fixed rate)	Operations, sales	Output versus the volume used to set the fixed rate
Overhead absorption (over or under applied)	Overhead	Overhead applied - Actual overhead incurred	Cost accounting	Overhead rate, absorption base and period cut off
Sales price variance	Revenue	(Actual price - Budget price) x Actual units sold	Sales	Discounts, rebates, mix of customers and price list errors
Sales volume variance	Revenue	(Actual units - Budget units) x Budget margin per unit	Sales, planning	Forecast bias, lost orders, timing of shipments across periods
Sales mix variance	Revenue	(Actual mix units - Budget mix units) x Budget margin per unit	Sales	Shift towards lower or higher margin products
Inventory revaluation variance	Inventory	On hand quantity x (New standard cost - Old standard cost)	Cost accounting	Timing of the standard cost roll and open work in process
Work in process close variance	Production order	Actual order cost - Standard cost of quantity delivered	Cost accounting	Orders closed with open components or unreported output
Scrap variance	Production order	Actual scrap cost - Standard scrap allowance	Quality, production	Scrap reason codes and whether scrap is in the standard

Terminology and sign conventions differ by company and ERP. Confirm whether a positive number means favorable or unfavorable in your reports.

Variance explanations taking too long?

Optional: we can review how your ERP posts variances and where a read-only analysis layer would help.

Optional. The tool and every export work without this. No spam.

How to use this table

Search for the variance your ERP report shows, read the formula, then follow the check column. Use the group filter to see all material or overhead variances together. Export it to Excel and add a column for the matching report or account in your own system. Month end review gets faster once each variance has a named owner.

Search by group such as Material, Labor or Overhead
Match each row to a GL account in your chart of accounts
Add favorable or unfavorable sign convention in your export

Price versus quantity

Almost every cost variance splits into a price part and a quantity part. The price part uses the actual quantity so that the two effects add up to the total with no overlap. Quantity effects are valued at the standard price. If you value quantity at actual price, the total still reconciles but the attribution to buyers and production shifts.

Reading variances together

A favorable purchase price variance with an unfavorable usage variance often means cheaper material that scraps more. A favorable labor rate variance with a bad efficiency variance often means lower paid people taking longer. Always read pairs, not single lines, before deciding who to call.

ERP notes

Whether purchase price variance is booked at receipt or at invoice, and whether production variances are posted at order close or per transaction, depends on the ERP and its costing configuration. Check your own costing method documentation before reconciling the GL to an operational report.

Frequently Asked Questions

Is a positive variance favorable?

It depends on the convention. Many cost reports show actual minus standard, so a positive cost variance is unfavorable, while revenue variances use the opposite sign. Always label the sign convention on every report.

Do I need standard costing to use variances?

Variances are most natural with standard costing. With actual or average costing you can still compare actual to a budget or quote, but the price and usage split needs a defined standard to compare against.

Who should own purchase price variance?

Purchasing usually owns it, but only if the standard cost was set with their input. If standards are stale, finance owns the correction. Ownership without a fair standard produces blame instead of action.

Can I export the table?

Yes, the table exports to Excel, CSV and PDF so you can add your own account numbers, owners and thresholds.

If variance explanations take days each close, Netray can build a read-only view over your ERP that traces each variance to the receipts, orders and transactions behind it.

Talk to an Expert Explore More Free Tools

Related Tools

Costing & Finance

More Costing & Finance tools

See all

Back to All Tools