Variance analysis

Variance analysis compares actual results with budgeted figures and decomposes any gap into named, explainable causes.

ByHoang TruongUpdated June 30, 2026

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A two-branch tree shows that total variance splits into two components: the flexible-budget variance (capturing price and efficiency differences) and the sales-volume variance (capturing only the effect of selling more or fewer units than planned). Together the two branches sum to the total static-budget variance. This decomposition allows managers to distinguish operational performance from pure volume effects, so that each type of deviation can be investigated separately.

Where it fits

SubjectManagerial AccountingCoreTopicStandard Costing & Variance AnalysisCore

The formula

LaTeX

\Delta_{static} = \Delta_{flex} + \Delta_{vol}

Top-level decomposition: splits the total gap between actual results and the original budget into a volume effect and a price/efficiency effect.

LaTeX

\Delta_{vol} = (Q_A - Q_B) \times CM_B

Variables

$Q_{A}$: Actual units sold (units)
$Q_{B}$: Budgeted units sold (units)
$C M_{B}$: Budgeted contribution margin per unit (€ per unit)

Isolates the profit effect of selling a different volume than planned, holding the budgeted margin constant.

LaTeX

\Delta_{flex} = \Delta_{price} + \Delta_{eff}

Covers all differences not explained by volume: paying more or less per unit of input (price variance) and using more or fewer inputs than the standard allows (efficiency variance).