Significance of variance analysis
Variance analysis is a process of measuring and analyzing the difference between the two figures. Variance analysis can be defined as a statistical or accounting tool that is used in order to identify the causes of variance in financial and the operational data of a business entity. In accounting variance analysis is used to assess the productivity and relativity of the project. Variance analysis helps in finding the difference between the actual costs and the planned costs of the project.
Variance analysis helps the managers to manage the difference between the actual and the budgeted costs of a project. Project managers will conduct a variance analysis at each and every milestone of the business or projects to assess the financial data and to find out the actual difference between the actual versus budgeted costs. In this way managers can analyze the quantitative data regarding the expenses, revenue and inventory level related to a project that will ultimately help the managers in redefining and managing business goals.
With the help of variance analysis accounting managers can also measure materiality threshold of a project. The materiality Threshold means whether the variance is worth noting or it is not that meaning full and it can be ignored. With the help of variance analysis business managers can also plan and forecast for the future. With the help of variance patterns managers can forecast the sales, sales volume and sales mix for the future. Variance analysis also help manager to identify the factors such as seasonal sales and holiday sales and plan their inventory and sales accordingly.