In
accounting, a variance
is the difference between an expected or planned amount and an
actual amount. For example, a variance can occur for items contained in a
department's expense report. Variance
analysis attempts to identify and explain the reasons for the
difference between a budgeted amount and an actual amount.
Variance
analysis is usually associated with a manufacturer's product costs. In this
setting, variance analysis attempts to identify the causes of the differences
between a manufacturer's 1) standard costs of the inputs that should have
occurred for the actual products it manufactured, and 2) the actual costs of
the inputs used for the actual products manufactured.
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 TK. 10,000 and actual sales are TK. 8,000,
variance analysis yields a difference of TK. 2,000.
Variance analysis is
especially effective when you review the amount of a variance on a trend line,
so that sudden changes in the variance level from month to month are more
readily apparent. Variance analysis also involves the investigation of these
differences, so that the outcome is a statement of the difference from
expectations, and an interpretation of why the variance occurred.
