Asked by: Rebbeca Balogh
asked in category: General Last Updated: 10th January, 2020

What do you mean by variance analysis and what is its importance?

Variance analysis is an integral part of any business to be successful. It is an important tool for budgetary control by means of evaluating the business performance by analyzing the variance between budgeted amount, planned amount or standard amount and actual amount spent.

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Correspondingly, what do you mean by variance analysis?

Variance analysis is the quantitative investigation of the difference between actual and planned behavior. This analysis is used to maintain control over a business. For example, if you budget for sales to be $10,000 and actual sales are $8,000, variance analysis yields a difference of $2,000.

Additionally, what is variance analysis explain the objectives and importance and types of variance analysis? In other words, variance analysis is a process of identifying causes of variation in the income and expenses of the current year from the budgeted values. It helps to understand why fluctuations happen and what can / should be done to reduce the adverse variance. This eventually helps in better budgeting activity.

Also, why is variance analysis important?

Variance analysis is important to assist with managing budgets by controlling budgeted versus actual costs. Variances between planned and actual costs might lead to adjusting business goals, objectives or strategies.

How do you do a variance analysis?

How to Perform a Variance Analysis:

  1. Step 1: Gather All Data into a Centralized Database.
  2. Step 2: Create a Variance Report.
  3. Step 3: Evaluate your variances.
  4. Step 4: Compile an explanation of the variances and recommendations for senior management.
  5. Step 5: Plan for the future.

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