What is Variance analysis and why do we do it?

Question

Accepted Answer

Variance analysis is a technique used to identify and analyze the difference between planned financial outcomes and actual results.

Variance analysis helps in understanding the reasons for deviations from budgeted or expected figures.
It involves comparing actual financial performance with budgeted or standard performance.
Common types of variances include price variance, quantity variance, and mix variance.
Variance analysis is crucial for identifying areas of improvement and making informed decisions for future planning.
For example, if a company budgeted $10,000 for advertising expenses but actually spent $12,000, the variance analysis would help determine the reasons for the $2,000 difference.

Accepted Answer

Analysing the difference (variance) between standard and actual cost

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