| What is variance analysis | Variance analysis is an analysis of differences between the budget and actual results. This evaluates effectiveness, efficiency and the manger himself. |
| Are variances expected? | Yes. Fluctuations will always happen between the budgeted and actual amount. |
| What does U and F mean in variance analysis? | U means the variance is unfavourable for the firm.
F means the variance is favourable for the firm. |
| What does the level 0 variance analysis contain? | The level 0 variance analysis only looks at the operating profit. |
| What does the level 1 variance analysis contain? | The level 1 analysis looks at the variance between the actual results and the static budget. |
| What does the level 2 variance analysis contain? | The level 2 analysis splits the static budget variance into the flexible budget variance and the sales volume variance. |
| What does the level 3 variance analysis contain? | The level 3 analysis looks at the direct material costs. |
| What does the price and efficiency variance from level 3 variance analysis show? | Price variance
Shows the differences between actual and budgeted input prices.
Efficiency variance
Shows the difference between actual and budgeted input. Formula: |
| What is 4-variance analysis? (Also known as three-way variance analysis) | This analysis tries to explain the variance in manufacturing overhead with a spending, efficiency and production volume variance. |
