Why is "Valuing the usage/efficiency variance at the actual price" a common mistake in Variances?

Why it happens: Confusing the two components. How to avoid it: Usage/efficiency variances use the STANDARD price/rate; price/rate variances use actual quantity/hours. Source: 9706 Examiner Reports

Why is "Using budgeted output instead of actual output for the standard quantity" a common mistake in Variances?

Why it happens: Forgetting to flex. How to avoid it: The standard quantity/hours must be for the ACTUAL output (standard per unit × actual units). Source: 9706 Examiner Reports

Why is "Omitting the favourable/adverse label" a common mistake in Variances?

Why it happens: Stopping at the number. How to avoid it: Always label each variance F or A — decided by the effect on profit. Source: 9706 Examiner Reports

Why is "Getting the F/A direction wrong" a common mistake in Variances?

Why it happens: Confusing cost and revenue effects. How to avoid it: Lower cost or higher revenue = F; higher cost or lower revenue = A. Source: 9706 Examiner Reports

Why is "Valuing the sales volume variance at selling price" a common mistake in Variances?

Why it happens: Confusing with revenue. How to avoid it: The sales volume (profit) variance uses the STANDARD PROFIT per unit, not the selling price. Source: 9706 Examiner Reports

Why is "Explaining causes of variances in isolation" a common mistake in Variances?

Why it happens: Ignoring interdependence. How to avoid it: Variances are linked — explain causes together (e.g. cheap material → F price + A usage). Source: 9706 Examiner Reports

Cambridge International A Levels Accounting (9706)

Variances

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Detailed Study Notes

Detailed notes on Standard costing for Cambridge International A Levels Accounting, covering key concepts, explanations, examples, and exam-focused revision points.

Variances — Cambridge AS & A Level Accounting 9706 Study Notes (2026-2028)

Calculating the differences. Master the material, labour, variable overhead, fixed overhead and sales variances — splitting each into a price (rate) component and a quantity (usage/efficiency) component — and how to identify whether each is favourable or adverse.

At a glance

A variance is the difference between actual and standard; it is favourable (F) or adverse (A).
Material price variance = (standard price − actual price) × actual quantity.
Material usage variance = (standard quantity for actual output − actual quantity) × standard price.
Labour rate variance = (standard rate − actual rate) × actual hours.
Labour efficiency variance = (standard hours for actual output − actual hours) × standard rate.
Sales price variance and sales volume variance measure revenue/profit differences.
Each total variance = its price/rate part + its usage/efficiency part.

What you’ll learn

Mapped to the Cambridge International A Level 9706 syllabus (2026-2028).

2.2.5 — Calculate material, labour, overhead and sales variances.
2.2.5 — Split each total variance into price/rate and usage/efficiency components.
2.2.5 — Identify whether each variance is favourable or adverse and explain possible causes.

Material variances

Split the material cost difference into a price part and a usage part.

The total direct material variance (standard cost of materials for actual output − actual material cost) splits into:

Material price variance — the effect of paying a different price than standard:

$\text{Price variance} = (\text{Standard price} - \text{Actual price}) \times \text{Actual quantity}$

Material usage variance — the effect of using a different quantity than standard:

$\text{Usage variance} = (\text{Standard quantity for actual output} - \text{Actual quantity}) \times \text{Standard price}$

Favourable (F) if it increases profit (paid less / used less); adverse (A) if it reduces profit (paid more / used more).

Causes: a price variance may come from a supplier price change, discounts, or buying a different grade; a usage variance from wastage, quality of materials, or efficiency. The two are often linked (cheap material → favourable price but adverse usage).

Price variance = (std price − actual price) × actual quantity.
Usage variance = (std quantity for output − actual quantity) × std price.
Favourable = increases profit; adverse = reduces profit.
Price and usage variances are often linked.

See the full worked example for variances →

Labour variances

Split the labour cost difference into a rate part and an efficiency part.

The total direct labour variance splits the same way:

Labour rate variance — the effect of paying a different rate than standard:

$\text{Rate variance} = (\text{Standard rate} - \text{Actual rate}) \times \text{Actual hours}$

Labour efficiency variance — the effect of taking a different number of hours than standard:

$\text{Efficiency variance} = (\text{Standard hours for actual output} - \text{Actual hours}) \times \text{Standard rate}$

Causes: a rate variance may come from a pay rise, overtime premium or using a different grade of labour; an efficiency variance from worker skill/motivation, machine problems, or material quality. Idle time (paid but not productive) usually causes an adverse efficiency variance.

The structure exactly mirrors materials: rate ↔ price (uses actual hours), efficiency ↔ usage (uses standard rate).

Rate variance = (std rate − actual rate) × actual hours.
Efficiency variance = (std hours for output − actual hours) × std rate.
Mirrors materials: rate ↔ price, efficiency ↔ usage.
Idle time causes an adverse efficiency variance.

See the full worked example for variances →

Overhead and sales variances

Variable/fixed overhead and sales price/volume variances.

Variable overhead variances mirror labour:

Expenditure (rate): (standard rate − actual rate) × actual hours;
Efficiency: (standard hours for output − actual hours) × standard variable overhead rate.

Fixed overhead variances (under absorption costing):

Expenditure variance: budgeted fixed overhead − actual fixed overhead;
Volume variance: (actual output − budgeted output) × standard fixed overhead per unit (the under/over-absorption split).

Sales variances measure the effect on profit:

Sales price variance: (actual price − standard price) × actual units sold;
Sales volume (profit) variance: (actual units − budgeted units) × standard profit per unit.

Sign convention: a sales price/volume variance is favourable if it raises profit (higher price / more units). As always, decide F or A by asking: does it increase or decrease profit?

Variable overhead: expenditure and efficiency variances (like labour).
Fixed overhead: expenditure (budget − actual) and volume (under/over-absorption).
Sales price = (actual − standard price) × actual units.
Sales volume = (actual − budgeted units) × standard profit per unit.

See the full worked example for variances →

Favourable/adverse and causes

Decide the sign by the effect on profit; explain plausible causes.

For every variance, decide favourable or adverse by its effect on profit:

Favourable (F): actual is better than standard (lower cost or higher revenue) → increases profit;
Adverse (A): actual is worse than standard (higher cost or lower revenue) → decreases profit.

Investigating causes (often asked):

Material price (A): supplier price rise, lost discount, higher-grade material.
Material usage (A): wastage, theft, poor-quality material, inefficient working.
Labour rate (A): pay rise, overtime, higher-grade workers.
Labour efficiency (A): low skill/motivation, machine breakdowns, poor materials, idle time.
Sales price (A): discounting, competition; volume (A): lower demand, lost customers.

Remember variances are interdependent (cheap material may cause favourable price but adverse usage), so investigate causes together. A full answer calculates, labels F/A, and suggests a plausible cause.

Favourable = better than standard (more profit); adverse = worse (less profit).
Material/labour causes: prices, grades, wastage, skill, idle time.
Sales causes: discounting, competition, demand.
Variances are interdependent — investigate causes together.

Quick recap

A variance is actual vs standard, labelled favourable (more profit) or adverse (less profit).
Material price = (std price − actual price) × actual quantity; usage = (std qty for output − actual qty) × std price.
Labour rate = (std rate − actual rate) × actual hours; efficiency = (std hrs for output − actual hrs) × std rate.
Variable overhead mirrors labour; fixed overhead splits into expenditure and volume.
Sales price = (actual − std price) × actual units; sales volume = (actual − budget units) × std profit/unit.
Decide F/A by the effect on profit; suggest plausible, interdependent causes.

Memorise this

Verbatim phrases and definitions Cambridge mark schemes credit.

Material price = (std price − actual price) × ACTUAL quantity.
Material usage = (std qty for output − actual qty) × STD price.
Labour rate = (std rate − actual rate) × ACTUAL hours; efficiency = (std hrs − actual hrs) × STD rate.
Sales price = (actual − std price) × actual units; sales volume = (actual − budget units) × std profit/unit.

How it’s examined

Tested on Paper 4 (A Level): calculate the material, labour, overhead and sales variances, label each F/A and suggest causes (commonly [8-16] marks). Examiner reports note candidates using actual price for usage, omitting F/A labels, and not flexing the standard quantity to actual output.

Sources: Cambridge International AS & A Level Accounting 9706 syllabus (2026-2028); 9706 Paper 4 past papers & mark schemes, 2022-2024; 9706 Examiner Reports, 2022-2024. Last reviewed 2026-06-19.

Take this whole topic with you

Step-by-step worked examples — Variances

Step-by-step solutions to past-paper-style questions on variances, written exactly the way a tutor would explain them at the board.

Question type:

1Material price variance (4 marks)
Getting startedMulti-step problem• 9706 Paper 4 style• material variance, AO2
Question
Standard price $5/kg. Actual: 4,200 kg bought at$ 5.30/kg. Calculate the material price variance and state F or A. (4 marks)
Step-by-step solution
1. Step 1
  Price variance = (standard price − actual price) × actual quantity.
2. Step 2
  = (5.00 − 5.30) × 4,200.
3. Step 3
  = −0.30 × 4,200 = −$1,260.
4. Step 4
  Paid more than standard → $1,260 Adverse.
Answer
$1,260 Adverse.
Examiner tip
Price variance uses ACTUAL quantity; paid more = adverse.
2Material usage variance (4 marks)
Getting startedMulti-step problem• material variance, AO2
Question
Standard: 4 kg per unit at $5/kg. Actual output 1,000 units used 4,200 kg. Calculate the material usage variance and state F or A. (4 marks)
Step-by-step solution
1. Step 1
  Standard quantity for actual output = 1,000 × 4 = 4,000 kg.
2. Step 2
  Usage variance = (std quantity − actual quantity) × std price.
3. Step 3
  = (4,000 − 4,200) × 5 = −200 × 5 = −$1,000.
4. Step 4
  Used more than standard → $1,000 Adverse.
Answer
$1,000 Adverse.
Examiner tip
Usage variance uses STD price; flex the standard quantity to actual output.
3Total material variance (4 marks)
Building confidenceMulti-step problem• material variance, AO2
Question
From the previous two examples: price variance $1,260 A and usage variance$ 1,000 A. Calculate the total material variance. (4 marks)
Step-by-step solution
1. Step 1
  Total = price variance + usage variance.
2. Step 2
  = 1,260 A + 1,000 A.
3. Step 3
  = $2,260 Adverse.
Answer
$2,260 Adverse.
Examiner tip
The two sub-variances add to the total material variance.
4Labour rate variance (4 marks)
Building confidenceMulti-step problem• labour variance, AO2
Question
Standard rate $12/hour. Actual: 2,050 hours paid at$ 11.60/hour. Calculate the labour rate variance and state F or A. (4 marks)
Step-by-step solution
1. Step 1
  Rate variance = (standard rate − actual rate) × actual hours.
2. Step 2
  = (12.00 − 11.60) × 2,050.
3. Step 3
  = 0.40 × 2,050 = $820.
4. Step 4
  Paid less than standard → $820 Favourable.
Answer
$820 Favourable.
Examiner tip
Rate variance uses ACTUAL hours; paid less = favourable.
5Labour efficiency variance (4 marks)
Building confidenceMulti-step problem• labour variance, AO2
Question
Standard: 2 hours per unit at $12/hour. Actual output 1,000 units took 2,050 hours. Calculate the labour efficiency variance and state F or A. (4 marks)
Step-by-step solution
1. Step 1
  Standard hours for actual output = 1,000 × 2 = 2,000 hours.
2. Step 2
  Efficiency variance = (std hours − actual hours) × std rate.
3. Step 3
  = (2,000 − 2,050) × 12 = −50 × 12 = −$600.
4. Step 4
  Took more hours than standard → $600 Adverse.
Answer
$600 Adverse.
Examiner tip
Efficiency variance uses STD rate; took longer = adverse.
6Sales price variance (4 marks)
StretchMulti-step problem• sales variance, AO2
Question
Standard selling price $40. Actual: 5,000 units sold at$ 42 each. Calculate the sales price variance and state F or A. (4 marks)
Step-by-step solution
1. Step 1
  Sales price variance = (actual price − standard price) × actual units.
2. Step 2
  = (42 − 40) × 5,000.
3. Step 3
  = 2 × 5,000 = $10,000.
4. Step 4
  Sold above standard price → $10,000 Favourable.
Answer
$10,000 Favourable.
Examiner tip
Higher price than standard increases revenue/profit = favourable.
7Sales volume variance (5 marks)
StretchMulti-step problem• sales variance, AO2
Question
Budgeted sales 4,500 units; actual 5,000 units. Standard profit per unit $9. Calculate the sales volume (profit) variance and state F or A. (5 marks)
Step-by-step solution
1. Step 1
  Sales volume variance = (actual units − budgeted units) × standard profit per unit.
2. Step 2
  = (5,000 − 4,500) × 9.
3. Step 3
  = 500 × 9 = $4,500.
4. Step 4
  Sold more than budgeted → $4,500 Favourable.
Answer
$4,500 Favourable.
Examiner tip
More units than budget at standard profit = favourable.
8Fixed overhead expenditure variance (4 marks)
StretchMulti-step problem• overhead variance, AO2
Question
Budgeted fixed overhead $80,000; actual fixed overhead$ 84,000. Calculate the fixed overhead expenditure variance and state F or A. (4 marks)
Step-by-step solution
1. Step 1
  Expenditure variance = budgeted fixed overhead − actual fixed overhead.
2. Step 2
  = 80,000 − 84,000.
3. Step 3
  = −$4,000.
4. Step 4
  Spent more than budget → $4,000 Adverse.
Answer
$4,000 Adverse.
Examiner tip
Spending more than budgeted overhead = adverse.
9Suggest a cause (4 marks)
StretchWord problem• causes, AO3
Question
A company has a favourable material price variance but an adverse material usage variance. Suggest a single cause that could explain both. (4 marks)
Step-by-step solution
1. Step 1
  The two variances are linked.
2. Step 2
  Buying cheaper, lower-quality material gives a favourable price variance.
3. Step 3
  But poorer material causes more wastage, giving an adverse usage variance.
4. Step 4
  So one decision (cheaper material) explains both variances.
Answer
Buying cheaper, lower-quality material: favourable price but adverse usage (more wastage).
Examiner tip
Variances are interdependent — one cause can explain both.
10Favourable or adverse? (4 marks)
StretchIdentify & classify• F/A, AO2
Question
State whether each is favourable (F) or adverse (A): (a) actual material price below standard; (b) more labour hours than standard; (c) sold above standard price; (d) actual fixed overhead above budget. (4 marks)
Step-by-step solution
1. Step 1
  (a) Price below standard → F (paid less, more profit).
2. Step 2
  (b) More hours than standard → A (cost more, less profit).
3. Step 3
  (c) Sold above standard price → F (more revenue).
4. Step 4
  (d) Overhead above budget → A (spent more).
Answer
(a) F; (b) A; (c) F; (d) A.
Examiner tip
Decide F/A by the effect on profit.

Model Answers — Variances

High-scoring sample answers for variances on the Cambridge IGCSE paper, with examiner-style notes mapping each response to the mark scheme and assessment objectives.

Question 1
9706 Paper 4 style6 marks
Q (6 marks). Standard: 5 kg per unit at $4/kg. Actual output 2,000 units used 10,500 kg costing$ 43,050. Calculate the material price variance and material usage variance, labelling each F or A.
Model answer
Actual price = 43,050 ÷ 10,500 = $4.10/kg. Price variance = (4.00 − 4.10) × 10,500 = −0.10 × 10,500 = $1,050 Adverse. Standard quantity for output = 2,000 × 5 = 10,000 kg. Usage variance = (10,000 − 10,500) × 4 = −500 × 4 = $2,000 Adverse.
Why this scores
Marking (point-based, 6). Actual price $4.10 (1); price variance$ 1,050 A (2.5); usage variance $2,000 A (2.5).
Question 2
9706 Paper 4 style6 marks
Q (6 marks). Standard: 3 hours per unit at $10/hour. Actual output 1,500 units took 4,400 hours costing$ 46,200. Calculate the labour rate variance and labour efficiency variance, labelling each F or A.
Model answer
Actual rate = 46,200 ÷ 4,400 = $10.50/hour. Rate variance = (10.00 − 10.50) × 4,400 = −0.50 × 4,400 = $2,200 Adverse. Standard hours for output = 1,500 × 3 = 4,500 hours. Efficiency variance = (4,500 − 4,400) × 10 = 100 × 10 = $1,000 Favourable.
Why this scores
Marking (point-based, 6). Actual rate $10.50 (1); rate variance$ 2,200 A (2.5); efficiency $1,000 F (2.5).
Question 3
9706 Paper 4 style5 marks
Q (5 marks). Budgeted sales 8,000 units at a standard price of $25 and a standard profit of$ 7 per unit. Actual: 8,600 units sold at $24 each. Calculate the sales price variance and the sales volume variance, labelling each F or A.
Model answer
Sales price variance = (24 − 25) × 8,600 = −1 × 8,600 = $8,600 Adverse. Sales volume variance = (8,600 − 8,000) × 7 = 600 × 7 = $4,200 Favourable.
Why this scores
Marking (point-based, 5). Price variance $8,600 A (2.5); volume variance$ 4,200 F using std profit (2.5).
Question 4
9706 Paper 4 style5 marks
Q (5 marks). Budgeted fixed overhead $120,000 for budgeted output 10,000 units. Actual fixed overhead$ 124,000; actual output 9,500 units. Calculate the fixed overhead expenditure variance and the fixed overhead volume variance, labelling each F or A.
Model answer
Standard fixed overhead per unit = 120,000 ÷ 10,000 = $12. Expenditure variance = budgeted − actual = 120,000 − 124,000 = $4,000 Adverse. Volume variance = (actual output − budgeted output) × std fixed o/h per unit = (9,500 − 10,000) × 12 = −500 × 12 = $6,000 Adverse.
Why this scores
Marking (point-based, 5). Expenditure $4,000 A (2.5); volume$ 6,000 A (2.5).
Question 5
9706 Paper 4 style4 marks
Q (4 marks). A company has a material price variance of $1,050 A and a material usage variance of$ 2,000 A. Calculate the total material variance and explain what it represents.
Model answer
Total material variance = price + usage = 1,050 A + 2,000 A = $3,050 Adverse. This represents the total difference between what the materials for the actual output should have cost (at standard) and what they actually cost — here $3,050 more than standard, reducing profit by that amount.
Why this scores
Marking (point-based, 4). $3,050 A (2); meaning — total difference std vs actual material cost (2).
Question 6
9706 Paper 4 style6 marks
Q (6 marks). A company's results show a favourable material price variance of $3,000 but an adverse material usage variance of$ 5,000 and an adverse labour efficiency variance of $2,000. Suggest a single underlying cause that could explain all three variances, and comment on the overall effect.
Model answer
A single likely cause is the purchase of cheaper, lower-quality material.

This would produce the favourable material price variance ($3,000), because the material was bought below the standard price. However, poorer-quality material tends to be wasted more in production, causing the adverse material usage variance ($5,000) as more material than standard was needed. It may also be harder to work with (more rejects, re-working), so the workers take longer than standard, explaining the adverse labour efficiency variance ($2,000).

Overall effect: the variances net to 3,000 F − 5,000 A − 2,000 A = $4,000 Adverse, so the decision to buy cheaper material has actually reduced profit by $4,000 overall. This illustrates that variances are interdependent and that a single favourable variance (the price saving) can conceal a worse total outcome — they must be judged together.
Why this scores
Marking (point-based, 6). Cheap material as cause (~2); links to each variance (~2); net $4,000 A / interdependence (~2).
Question 7
9706 Paper 4 style4 marks
Q (4 marks). State whether each variance is favourable or adverse: (a) labour took fewer hours than standard; (b) material cost more per kg than standard; (c) fewer units sold than budgeted; (d) fixed overhead spending below budget.
Model answer
(a) Fewer hours than standard → Favourable (lower cost). (b) Material cost more per kg → Adverse (higher cost). (c) Fewer units sold than budgeted → Adverse (lower profit). (d) Overhead spending below budget → Favourable (lower cost).
Why this scores
Marking (point-based, 4). 1 mark each, decided by the effect on profit.
Question 8
9706 Paper 4 style8 marks
Q (8 marks). Standard for one unit: materials 2 kg at $9/kg; labour 1.5 hours at$ 14/hour. Actual output 3,000 units: materials 6,300 kg bought and used at $8.80/kg; labour 4,350 hours at$ 14.40/hour. Calculate the material price, material usage, labour rate and labour efficiency variances, labelling each F or A.
Model answer
Material price = (9.00 − 8.80) × 6,300 = 0.20 × 6,300 = $1,260 Favourable. Material usage: std qty = 3,000 × 2 = 6,000 kg; (6,000 − 6,300) × 9 = −300 × 9 = $2,700 Adverse. Labour rate = (14.00 − 14.40) × 4,350 = −0.40 × 4,350 = $1,740 Adverse. Labour efficiency: std hours = 3,000 × 1.5 = 4,500; (4,500 − 4,350) × 14 = 150 × 14 = $2,100 Favourable.
Why this scores
Marking (point-based, 8). Price $1,260 F (2); usage$ 2,700 A (2); rate $1,740 A (2); efficiency$ 2,100 F (2).
Question 9
9706 Paper 4 style4 marks
Q (4 marks). Suggest one possible cause for each of the following adverse variances: (a) labour efficiency; (b) material usage.
Model answer
(a) Adverse labour efficiency could be caused by less-skilled or poorly-motivated workers, machine breakdowns/idle time, or poor-quality material that is slow to work — so production took more hours than standard. (b) Adverse material usage could be caused by wastage or spoilage, theft, poor-quality material, or inefficient/careless working — so more material than standard was used per unit. (Other valid causes accepted.)
Why this scores
Marking (point-based, 4). A plausible cause for each (2 + 2).
Question 10
9706 Paper 4 style4 marks
Q (4 marks). A labour rate variance is $1,200 Favourable and a labour efficiency variance is$ 1,800 Adverse. Calculate the total direct labour variance and state whether it is favourable or adverse.
Model answer
Total direct labour variance = rate variance + efficiency variance = 1,200 F + 1,800 A = $600 Adverse (the adverse efficiency variance exceeds the favourable rate variance by $600). This represents the total amount by which the actual labour cost for the actual output exceeded the standard.
Why this scores
Marking (point-based, 4). Net F and A (2); $600 Adverse (2).

Key Formulae — Variances

The formulae you need to memorise for variances on the Cambridge IGCSE paper, with every variable defined in plain English and a note on when to use it.

Material price variance
$Price\ variance = (Standard\ price - Actual\ price) \times Actual\ quantity$
$Actual quantity$
quantity of material actually purchased/used
When to use
To find the effect of paying a different price than standard.
Example
(5.00 − 5.30) × 4,200 = $1,260 A.
Material usage variance
$Usage\ variance = (Standard\ quantity\ for\ output - Actual\ quantity) \times Standard\ price$
$Standard quantity for output$
standard quantity per unit × actual units
When to use
To find the effect of using a different quantity than standard.
Example
(4,000 − 4,200) × 5 = $1,000 A.
Labour rate variance
$Rate\ variance = (Standard\ rate - Actual\ rate) \times Actual\ hours$
$Actual hours$
hours actually paid
When to use
To find the effect of a different wage rate.
Example
(12 − 11.60) × 2,050 = $820 F.
Labour efficiency variance
$Efficiency\ variance = (Standard\ hours\ for\ output - Actual\ hours) \times Standard\ rate$
$Standard hours for output$
standard hours per unit × actual units
When to use
To find the effect of taking more/fewer hours than standard.
Example
(2,000 − 2,050) × 12 = $600 A.
Sales price variance
$Sales\ price = (Actual\ price - Standard\ price) \times Actual\ units$
$Actual units$
units actually sold
When to use
To find the profit effect of a different selling price.
Example
(42 − 40) × 5,000 = $10,000 F.
Sales volume (profit) variance
$Sales\ volume = (Actual\ units - Budgeted\ units) \times Standard\ profit\ per\ unit$
$Standard profit per unit$
standard selling price − standard cost
When to use
To find the profit effect of selling a different volume.
Example
(5,000 − 4,500) × 9 = $4,500 F.

Key Definitions and Keywords — Variances

Definitions to memorise and the exact keywords mark schemes credit for variances answers — sharpened from recent examiner reports for the 2026 Cambridge IGCSE sitting.

Variance
Examiner keyword
The difference between an actual figure and the standard; favourable or adverse.
Favourable (F) variance
Examiner keyword
Actual is better than standard (lower cost or higher revenue); increases profit.
Adverse (A) variance
Examiner keyword
Actual is worse than standard (higher cost or lower revenue); decreases profit.
Price/rate variance
Examiner keyword
The effect of a different price or wage rate; valued at the actual quantity/hours.
Usage/efficiency variance
Examiner keyword
The effect of using a different quantity or number of hours; valued at the standard price/rate.
Sales price variance
Examiner keyword
(Actual price − standard price) × actual units; the profit effect of the selling price.
Sales volume variance
Examiner keyword
(Actual units − budgeted units) × standard profit per unit; the profit effect of volume.
Standard quantity/hours for actual output
Standard per unit × actual units produced — the 'flexed' standard used in usage/efficiency variances.

Common Mistakes and Misconceptions — Variances

The traps other students keep falling into on variances questions — taken from recent Cambridge IGCSE examiner reports and mark schemes — and how to avoid them.

✕Valuing the usage/efficiency variance at the actual price
9706 Examiner Reports
Why it happens
Confusing the two components.
How to avoid it
Usage/efficiency variances use the STANDARD price/rate; price/rate variances use actual quantity/hours.
✕Using budgeted output instead of actual output for the standard quantity
9706 Examiner Reports
Why it happens
Forgetting to flex.
How to avoid it
The standard quantity/hours must be for the ACTUAL output (standard per unit × actual units).
✕Omitting the favourable/adverse label
9706 Examiner Reports
Why it happens
Stopping at the number.
How to avoid it
Always label each variance F or A — decided by the effect on profit.
✕Getting the F/A direction wrong
9706 Examiner Reports
Why it happens
Confusing cost and revenue effects.
How to avoid it
Lower cost or higher revenue = F; higher cost or lower revenue = A.
✕Valuing the sales volume variance at selling price
9706 Examiner Reports
Why it happens
Confusing with revenue.
How to avoid it
The sales volume (profit) variance uses the STANDARD PROFIT per unit, not the selling price.
✕Explaining causes of variances in isolation
9706 Examiner Reports
Why it happens
Ignoring interdependence.
How to avoid it
Variances are linked — explain causes together (e.g. cheap material → F price + A usage).

Variances

Detailed Study Notes

At a glance

What you’ll learn

Quick recap

Memorise this

How it’s examined

Take this whole topic with you

1Material price variance (4 marks)

2Material usage variance (4 marks)

3Total material variance (4 marks)

4Labour rate variance (4 marks)

5Labour efficiency variance (4 marks)

6Sales price variance (4 marks)

7Sales volume variance (5 marks)

8Fixed overhead expenditure variance (4 marks)

9Suggest a cause (4 marks)

10Favourable or adverse? (4 marks)

Material price variance

Material usage variance

Labour rate variance

Labour efficiency variance

Sales price variance

Sales volume (profit) variance

Variance

Favourable (F) variance

Adverse (A) variance

Price/rate variance

Usage/efficiency variance

Sales price variance

Sales volume variance

Standard quantity/hours for actual output

✕Valuing the usage/efficiency variance at the actual price

✕Using budgeted output instead of actual output for the standard quantity

✕Omitting the favourable/adverse label

✕Getting the F/A direction wrong

✕Valuing the sales volume variance at selling price

✕Explaining causes of variances in isolation