Variance analysis

This refers to the investigation of the reasons behind a difference between budgeted and actual figures.

Variances can be favourable (where spend is lower or income is higher than budgeted) or adverse (where spend is higher or income is lower). It may be that the budget figure was estimated poorly or that costs are rising faster than expected – each would require very different action by the manager. In some cases variances may be the result of timing, for example an invoice expected in May arrives in April, it is therefore necessary to monitor. In statistical analysis, variance analysis often refers to the analysis of data against the mean average for that data and its standard deviation (how spread out the data is).

Variance analysis is a term normally found in management accounting.

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