variance analysis
definition Variance means difference while analysis means breakdown. In Cost or Management Accounting, variance would relate to difference between Standard and Actual Costs. Analysis would break this difference into various parts like quantity, price and capacity. Any wide variation would be thoroughly investigated and persons responsible (purchase manager, human resource manager, factory manager or marketing manager) would be asked to explain. If it proved avoidable or controllable, someone would be penalized or reprimanded else measures would be taken to avoid in future as far as possible. In short, variance analysis helps the management in decision-making. In addition (i) it is used in cost-control, (ii) gives early warning for corrective action and (iii) is useful in accountability. What is a standard cost? It is a planned cost or a target cost. It is a realistic estimate based on historical data or experiments like time and motion studies. Standard costs give an indicat...