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What is the primary purpose of variance analysis?
What is the primary purpose of variance analysis?
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Practice Questions
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Q1
What is the primary purpose of variance analysis?
To calculate profit
To compare budgeted and actual performance
To determine fixed costs
To set sales prices
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Variance analysis is primarily used to compare budgeted performance against actual performance to identify discrepancies.
Questions & Step-by-step Solutions
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Q
Q: What is the primary purpose of variance analysis?
Solution:
Variance analysis is primarily used to compare budgeted performance against actual performance to identify discrepancies.
Steps: 5
Show Steps
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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