How to Calculate Standard Cost Variance

Save

The standard cost variance is the difference between estimated and actual costs. A simple calculation can be used to determine how much you are spending, as opposed to how much you are predicting or budgeting. The technique can be used determine the variance of a business project or a category of a variable personal budget. For a business project, expenses could include labor and materials. For a personal budget, it could be all food or entertainment expenses. The standard cost variance can help you more accurately determine the real cost so the estimate will be more accurate.

  • Estimate the total cost of a category of your budget. The category will need to be a variable expense such as food.

  • Track all the inputs into the expenses that you accumulate throughout the month, if you are doing a monthly analysis. Input the expense every day so you don't forget.

  • Add all of the expenses in the category up at the end of the month. Subtract the total from the total that you budgeted for. This is your standard cost variance.

  • Use the actual cost for the month to estimate how much you will spend in the next month. During a few months, you can more accurately estimate your costs by averaging the actual expense over the number of months. To do this, you must divide the total costs by the number of months you sampled.

References

  • Photo Credit Jupiterimages/BananaStock/Getty Images
Promoted By Zergnet

Comments

You May Also Like

Related Searches

M
Is DIY in your DNA? Become part of our maker community.
Submit Your Work!