What Do We Mean By Variance Analysis

Variance analysis is to analyse variance.

• Variance is basically the difference between actual cost of manufacturing and the standard cost at the actual level of production. Variance analysis assists operating managers to analyse and determine the corrective actions needed for improvement.
• Note that in variance analysis, we say that the variance can be favourable (F) if actual cost is less than standard costs and variance are adverse/unfavourable(A or U) if actual cost is more than standard cost.
• When analysing variances in a manufacturing company, we mainly look at three areas namely direct material variance, direct labor variance and factory overhead variance.