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The variance analysis describes the distinction between the actual cost and the standard cost. For instances, difference in labor cost can be divided into labor price and its usage. Thus distinction between the actual and standard labor cost can be separated into rate and efficiency variance.
Variance analysis assists the management to comprehend the present cost. It helps them to supervise the future cost too. It is an organizational sector of accounting that includes some kind of computation. You need to concentrate a lot to do all those computations, as it draws in rewriting. The most important thing about variance analysis is that it can be accomplished for both cost and the revenue.
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The main objective for computation of variance analysis is to authorize cost. Authorization of cost relies on the healing activities taken by the administration. Variance Analysis helps the administration to find the errors and give the authority to the cost centre. Thus the administration takes an action to rectify the errors. Variance can be classified as:
Controllable – the variance that can be identified easily.
Uncontrollable – the variance that cannot be identified easily.
From the managerial aspect, importance must be given to controllable variance. As it is an initial duty of a cost centre to identify controllable variance.
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