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What are some concepts behind variance analysis?

What are some concepts behind variance analysis? Why is it important to test for variances in your data? Explain. How is variance analysis used in health care administration? Provide an example.

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Variance analysis is usually associated with explaining the difference (or variance) between actual costs and the standard costs allowed for the good output. For example, the difference in materials costs can be divided into a materials price variance and a materials usage variance. The difference between the actual direct labor costs and the standard direct labor costs can be divided into a rate variance and an efficiency variance. The difference in manufacturing overhead can be divided into spending, efficiency, and volume variances. Mix and yield variances can also be calculated.

Variance analysis helps management to understand the present costs and then to control future costs.
Variance analysis is also used to explain the difference between the actual sales dollars and the budgeted ...

Solution Summary

Variance analysis is usually associated with explaining the difference (or variance) between actual costs and the standard costs allowed for the good output. For example, the difference in materials costs can be divided into a materials price variance and...

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