Managers are constantly comparing the costs of what was expected to happen with the costs of what did happen. By examining the differences, or variances, managers can learn much valuable information. Identify and discuss the steps involved in variance analysis
1. The first step is to compute the variance. If the variance is insignificant, actual operating results are close enough to anticipated conditions, no corrective action is needed.
2. If the variance is significant, the management accountant analyzes it to identify its cause. Knowing the cause usually helps to pinpoint the areas or activities that need to be monitored.
3. The management accountant identifies the performance measures needed to track the area or activity.
4. Corrective action is taken to solve the problem.
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