Income Statement Variance Analysis Example

Revenue variance analysis is used to measure differences between actual sales and expected sales based on sales volume metrics sales mix metrics and contribution margin calculations.

Income statement variance analysis example. In short variance analysis involves computation of individual variances and determination of causes of each such variance. For example if you budget for sales to be 10 000 and actual sales are 8 000 variance analysis yields a difference of 2 000. For example the difference in materials costs can be divided into a materials price variance and a materials usage variance. Variance analysis is usually associated with explaining the difference or variance between actual costs and the standard costs allowed for the good output.

For example purchase expenses are increased due to lower supply of raw material used in production. But an income statement does much more than identify net income. Variance analysis formula with example. This has been a guide to what is variance analysis.

The sum of all variances gives a picture of the overall over performance or under performance for a particular reporting period fiscal year fy a fiscal year fy is a 12 month or 52 week period of time used by governments and businesses for accounting purposes to formulate annual. Variance analysis typically involves the isolation of different causes for the variation in income and expenses over a given period from the budgeted standards. Information obtained from revenue variance analysis is important to organizations because it enables management to determine actual sales performance compared to projections. You can view a sample of variance analysis pdf report in below reference links.

Variance analysis can be summarized as an analysis of the difference between planned and actual numbers. This analysis is used to maintain control over a business. Again the most important thing an income statement tells you is how much income has been made during a particular period of time. When actual cost is higher than the standard cost variance analysis is said to be unfavorable or adverse which is a sign of inefficiency and thereby reduces the profit of the business.

So for example if direct wages had been budgeted to cost 100 000 actually cost 200 000 during a period variance analysis shall aim to identify how much of the increase in direct wages is attributable to. Variance analysis is the quantitative investigation of the difference between actual and planned behavior.