Introduction And Meaning Of Variance Analysis
Variance analysis is a technique of analyzing the difference between predicted and actual outcomes of the business. Companies use this method to compare their actual outcomes with predetermined standard. It helps the firms to monitor and control costs , operational activities and improve performance in order to achieve business goals and objectives.
Importance Of Variance Analysis
The main objectives or importance of variance analysis method can be described as follows:
1. To Compare The Results
Variance analysis compares actual output with budgets that helps to determine the operational efficiency of the firm. So, it is useful to monitor the business performance.
2. To Control Excess Costs
It finds out the deviation between actual and standard costs and provides data to the management. It helps the top authority to control excess or unnecessary costs in the production process.
3. To Facilitate Decision Making
Another importance of variance analysis is that it helps the management in decision making process. To authority can make sound decisions on the basis of data provided by the variance analysis,
4. To Fix The Responsibility
Variance analysis can be used to fix responsibilities of different branches, departments, units, sections and individuals in the company.
Also Read:
Meaning and objectives of standard costing
5. Helpful For Planning And Forecasting
It can be used for planning and forecasting purpose also. Managers can make more accurate forecasting and smart budget by analyzing the current result of the business firm.
