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The variance is the difference between the standard units and the actual units used in production, multiplied by the standard price per unit.The standard costing variance is negative (unfavorable), as the actual units used are higher than the standard units, and the business incurred a greater cost than it expected to.There are numerous variances which can be calculated for each type of cost the business has, but they generally fall into one of the four categories listed below.For example, if the standard price is 4.00 per unit, and the actual price is 3.80 per unit, and 2,000 units are used in the manufacture of a product, then the standard costing price variance is given as follows: The standard costing variance is positive (favorable), as the actual price was lower than the standard price, and the business paid less for the units than it expected to.
Fixed costs by their nature are fixed do not vary with the quantity of units used in manufacture and therefore do not have a quantity variance.
It is the repetitive nature of the production process which allows reliable and accurate standards to be established.
The standard costs set should be realistic and achievable based on accurate historical or comparable industry data such as material and labor usage.
The volume variance can also be calculated by multiplying the difference in the hours by the standard fixed overhead rate.
The standard costing budget variance is (positive) favorable as the business spent 2,000 less than it expected to in the original budget.