Disposition of Variances Assignment Help: 3 Commonly Used Methods Discussed
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Methods for Disposition of Variances
Variance is defined as the difference between Budget and Actual i.e. planned financial outcomes and actual financial outcomes.
Cost Accountants have different opinions regarding the Disposition of Variances. The most commonly used methods for disposition are being enlisted:
- Method 1. The cost of sales along with the completed, as well as, the work-in-progress stock is maintained at the standard cost. When Variances arise, they are transferred to the Profit and Loss account.
- Method 2. The Variances are distributed on pro-rata basis among cost of sales, finished stock and work-in-progress stock.
- Method 3. Quantity Variance can be written off to Profit and Loss Account; Price Variance can be distributed among Cost of sales, finished goods and work-in-progress stock. Variance is usually spread over Cost of Sales and Stock because they are representative of costs, even though they are derived as Variances.
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