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Define Variance Analysis

Define Variance Analysis

Answers

Wilfred
Variance analysis can simply be defined as the process of analyzing the difference between the standard cost and the actual cost (this difference is called the variance) into its constituent parts. The causes of variances are determined and management can take appropriate measures.

The process by which the total difference between standard and actual cost is sub-divided into various parts is known as variance analysis. It may be also defined as, “The analysis of variances arising in a standard costing system into their constituent parts.” A variance is the difference between the standard cost and actual cost. In variance analysis, the variance is further subdivided into material variance, labour cost variance and overhead variance. The variances may rise due to various reasons. The variances may be adverse or favourable. When actual cost is greater than standard cost, the variance is known as adverse or unfavourable. On the other hand, when actual cost is less than standard cost then the variance is favourable. These variances may be also known as minus (adverse) or plus (favourable) variances.
Wilfykil answered the question on April 17, 2019 at 08:39

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