Business Glossary

seeking causes for variances between standard costs and actual costs; also called variance analysis. A variance is considered favorable if actual costs are less than standard costs; it is unfavorable if actual costs exceed standard costs. Unfavorable variances need further investigation. Analysis of variances reveals the causes of these deviations. This feedback aids in planning future goals, controlling costs, evaluating performance, and taking corrective action. management by exception is based on the analysis of variances, and attention is given to only the variances that require remedial actions.