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Variance analysis provides insights into performance against budgets from "summary" of Management & Cost Accounting by Colin Drury
Variance analysis serves as a crucial tool in evaluating the efficiency and effectiveness of an organization's financial performance compared to its planned budget. By systematically comparing actual results with budgeted figures, it uncovers the reasons behind discrepancies, allowing management to make informed decisions aimed at improving future performance. The process begins with the identification of variances, which can be categorized into two main types: favorable and unfavorable. Favorable variances occur when actual performance exceeds expectations, while unfavorable variances arise when actual results fall short of the budget. Each variance is then analyzed to determine its root cause, whether it stems f...
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