Types of Variances
Variances can be divided according to their effect or nature of the underlying amounts.
When effect of variance is concerned, there are two types of variances:
- When actual results are better than expected results given variance is described as favorable variance. In common use favorable variance is denoted by the letter F - usually in parentheses (F).
- When actual results are worse than expected results given variance is described as adverse variance, or unfavourable variance. In common use adverse variance is denoted by the letter U or the letter A - usually in parentheses (A).
The second typology (according to the nature of the underlying amount) is determined by the needs of users of the variance information and may include e.g.:
- Variable cost variances
- Direct material variances
- Direct labour variances
- Variable production overhead variances
- Fixed production overhead variances
- Sales variances
Read more about this topic: Variance (accounting)
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