Variance analysis

Analysis of variance is the analysis of performance by means of variances. It is used to enhance management actions at the earliest possible stages. After the budget is established (based on standard costs), its usefulness lies in audit procedures that compare actual results with the budget. Variance analysis is the process of examining in detail each difference between actual costs and budgeted/forecast/standard costs to determine reasons why budgeted results are not being achieved (material costs are too high, sales prices are too low, etc.).

- Used in product/service costing, budgeting, and variance analysis.
- Used to support pricing decisions and profitability analysis by cost behavior and drivers.

- Example: The costing team uses **Variance analysis** to allocate costs and analyze margins by product line.

- Why it matters: Improves cost accuracy, supports better pricing and budgeting, and strengthens performance measurement.