Forecasting and Variance Analysis

Forecasting

A tool that helps businesses predict future conditions and market trends.

Variance Analysis

The process of comparing actual financial performance against budgeted financial performance.

Favorable Variance

When actual performance is better than budgeted performance.

Unfavorable Variance

When actual performance is worse than budgeted performance.

Actual Cost - Budgeted Cost

Formula of Cost Variance

Actual Revenue - Budgeted Revenue

Formula of Revenue Variance

(Actual Quantity - Budgeted Quantity) × Budgeted Price

Formula of Volume Variance

(Actual Price - Budgeted Price) × Actual Quantity

Formula of Price Variance

Actual Price - Budgeted Price

Formula of Material Price Variance

Actual Quantity - Budgeted Quantity of Actual Output

Formula of Material Usage Variance

Actual Hourly Labor Rate - Budgeted Rate

Formula of Labor Rate Variance

Actual Labor Hours Used - Budgeted Labor Hours for Actual Output

Formula of Labor Efficiency Variance

Actual Overhead Costs - Budgeted Overhead Costs

Formula of Overhead Spending Variance

(Standard Hours for Production - Actual hours taken) × Standard overhead absorption rate per hour

Formula of Overhead Efficiency Variance