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What is the primary purpose of variance analysis?

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Question: What is the primary purpose of variance analysis?

Options:

  1. To calculate profit
  2. To compare budgeted and actual performance
  3. To determine fixed costs
  4. To set sales prices

Correct Answer: To compare budgeted and actual performance

Solution: 

Variance analysis is primarily used to compare budgeted performance against actual performance to identify discrepancies.

What is the primary purpose of variance analysis?

Practice Questions

Q1
What is the primary purpose of variance analysis?
  1. To calculate profit
  2. To compare budgeted and actual performance
  3. To determine fixed costs
  4. To set sales prices

Questions & Step-by-Step Solutions

What is the primary purpose of variance analysis?
  • Step 1: Understand that variance analysis is a method used in finance and accounting.
  • Step 2: Know that it involves looking at two sets of numbers: budgeted (planned) performance and actual performance.
  • Step 3: Compare the budgeted numbers to the actual numbers to see if they match or if there are differences.
  • Step 4: Identify any discrepancies, which are the differences between the budgeted and actual numbers.
  • Step 5: Analyze these discrepancies to understand why they happened and what they mean for the business.
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