Variance analysis is a quantitative investigation of the difference between actual and planned behavior. It is a method used to maintain control over a business through the investigation of areas in which performance was unexpectedly poor. Variance analysis is used to assess the difference between predicted and actual outcomes. It is an important parameter for investors as they compare the current trends with the planned or forecasted behavior in budgeting or management accounting.

Variance analysis involves the comparison of planned and actual numbers, and the sum of all variances gives a picture of the overall performance. It is used to assess the price and quantity of materials, labor, and overhead costs, and these numbers are reported to management. Variances are computed for both the price and quantity of materials, labor, and variable overhead and are reported to management.

Variance analysis can help companies identify problems so that they can be fixed or improve overall company performance. It is especially effective when reviewing 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. However, not all variances are important, and management should only pay attention to those that are unusual or particularly significant.

In summary, variance analysis is a method used to assess the difference between planned and actual numbers, and it is used to maintain control over a business through the investigation of areas in which performance was unexpectedly poor. It is an important parameter for investors, and it can help companies identify problems so that they can be fixed or improve overall company performance.