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Budgeting & Forecasting › Variance Analysis

How do you reconcile standard cost of actual production to actual cost?

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Answer

Start with the standard cost of actual output, then add adverse and subtract favorable cost variances (materials price/usage, labour rate/efficiency, overhead variances) to arrive at the actual cost. This reconciliation shows how each variance bridges the expected (standard) cost to what was actually incurred.
Std cost of output 100k +/- variances = Actual cost 106k.
Real-world example The reconciliation itemizes how usage and rate variances explain the gap to actual cost.

Common follow-ups: What is the starting point? | What does the reconciliation show?

Flexible Budgets The Master Budget Variance Analysis
All 38 Variance Analysis questions