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Variance analysis helps businesses monitor their financial performance and identify any areas of concern. By analyzing the variances between actual and expected results, businesses can identify any issues or opportunities and take necessary action to improve their performance.

Standard costing is a method of cost and management accounting which starts with setting of standards to reporting of variances to management for taking corrective actions.

There are four steps involved in this process: Calculate the difference between what we spent and what we budgeted to spend. Investigate why there is a difference. Put the information together and talk to management. Put together a plan to get costs more in line with the budget.

Variance analysis can be summarized as an analysis of the difference between planned(standard) and actual numbers. The sum of all variances gives a picture of the overall over-performance or under-performance for a particular reporting period.

Definition: Variance analysis is the study of deviations of actual behaviour versus forecasted or planned behaviour in budgeting or management accounting. This is essentially concerned with how the difference of actual and planned behaviours indicates how business performance is being impacted.

Direct Labor Mix Variance is typically calculated by subtracting the actual amount of labor used from the budgeted amount, then dividing the result by the budgeted amount.

Variance analysis is the comparison of predicted and actual outcomes. For example, a company may predict a set amount of sales for the next year and compare its predicted amount to the actual amount of sales revenue it receives.