production cost variance

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In standard costing, the variance arising when the standard cost of the actual production is compared with the actual cost incurred. If the standard cost is higher than the actual cost a favourable variance arises, while if the actual cost exceeds the standard cost an adverse variance occurs. The production cost variance is usually analysed into the direct materials total cost variance, the direct labour total cost variance, and the overhead total variance, each of which can be further analysed within such parameters as expenditure and efficiency. See analysis of variance.

Subjects: Accounting.

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