What is cost variance analysis and why is it important?

What is cost variance analysis and why is it important?

Cost variance analysis is a financial tool used to assess the difference between planned and actual costs. It's important because it helps organizations identify areas where they are overspending or underspending, allowing for better budget management.

How do you calculate cost variance?

Cost variance is calculated by subtracting the actual cost from the budgeted cost. The formula is: Cost Variance = Budgeted Cost - Actual Cost.

Can you give me an example of cost variance analysis?

Sure! If a project was budgeted at $10,000 but the actual cost came to $12,000, the cost variance would be -$2,000, indicating an overspend.

What actions can be taken if there is a significant cost variance?

If there's a significant cost variance, organizations can investigate the causes, adjust budgets, implement cost control measures, or reallocate resources to manage the situation effectively.