Variance Analysis FAQs What is variance analysis? Variance analysis is a technique of investigation using which the possible causes for cost differences between estimated and actual costs can be identified. The goal of variance analysis is to explain why there are deviations from standards (or budgets). How is variance analysis useful? Variance analysis enables managers to identify efficient operation areas by comparing Standard Costs with actual costs. This technique also helps managers provide feedback to employees for improvement efforts. It also provides a method for assigning responsibility when dealing with variances. What are the different types of variances? Material Variance, Labor Variance, and Overhead or Indirect cost variance are three main types of variances. What is a material variance? A material variance occurs when Standard Costs for quantities purchased or manufactured are compared to actual costs incurred. Any difference between the standard price and the actual cost is a material variance. What is a labor variance? A labor variance occurs when Standard Costs for wages paid to employees are compared with actual costs incurred. Any difference between the standard price and the actual cost is considered as labor variance. About the Author True Tamplin, BSc, CEPF® Facebook Linkedin Instagram Twitter Youtube True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists. True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics. To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.