variance analysis

Variance analysis in accounting is a method used to compare planned or standard costs with actual costs incurred. This comparison helps identify differences, known as variances, which can then be analyzed to understand the reasons behind them.1

Managerial accounting utilizes variance analysis as part of its performance reporting function. By comparing actual results to budgeted plans, managers can assess how well their operations are performing and identify areas for improvement. For example, a comparative income statement might show the difference between planned and actual profit contributions from different divisions, along with explanations for these variances.1

In statistics, variance is the square of the standard deviation and is used to analyze factors influencing the spread of data. In accounting, this concept is applied to understand deviations in costs and profits.21