Variance analysis is an important tool because:
A)It helps management determine where bottlenecks in the production process occurred
B)It helps management determine better pricing strategies
C)It helps management determine why actual profits varied from budgeted profits
D)It helps management determine which department operated most efficiently.

Question

Quizplus · Accepted Answer

Variance analysis allows management to compare and analyze actual financial results against budgeted or expected results. By identifying the reasons for the variances, such as unexpected expenses or lower than expected sales, management can make decisions to improve future performance and profitability. This makes C the best choice as it directly addresses the purpose of variance analysis in determining why actual profits varied from budgeted profits. The other choices, while related to performance analysis, do not specifically relate to the purpose of variance analysis.

Variance Analysis Is an Important Tool Because