What is variance reporting?

Variance reporting involves preparing reports that summarize the differences or variances between actual performance and predetermined standards, such as standard costs and budgets. This process is critical in managerial accounting as it enables organizations to assess how well they are adhering to their financial plans and to identify areas that may require corrective action. By analyzing these variances, management can understand whether actual costs are higher or lower than expected, which is vital for making informed decisions regarding operations and budgeting.

This practice not only highlights discrepancies but also provides insights into operational efficiency and resource utilization, allowing management to make strategic adjustments to improve performance. Overall, variance reporting serves as an essential tool for performance evaluation and management control within an organization.