Question

What types of information can variance analysis provide to the manager? How can it be used? Give examples.

Answer 1

Variance analysis is the quantitative investigation of the differences between actual and planned behavior.the analysis is used to maintain control over a business. For example, if you budget for sale to be*$10,000 and actual sale are$8,00, variance analysis is especially effective when you review the amount of a variance on a trend line,so that sudden changes in the variance level from month to month are more readily apparent.variance analysis also involved the investigation of these differences,sothat the outcome is a statement of the differences from expectations, and an interpretation of why the variance occurred.to continue with the example,a complete analysis of the sale variance would be:

" Sales during the month were $2,000 lower than the budget of$10,000.this variance was primarily caused by the loss of abc customer at the end of the preceding month which usually buys $1,800 per month from the company. We lost ABC customer of late deliveries to it over the past few months."