Which process analyzes the difference between standard costs and actual costs?

Variance analysis is the process that specifically examines the differences between standard costs, which are predetermined costs that a company expects to incur, and actual costs, which are the costs that have been incurred. This analysis is crucial in managerial accounting as it helps organizations understand the reasons behind cost discrepancies and assess their performance against budgeted expectations.

By conducting variance analysis, management can identify areas where costs may be higher or lower than anticipated. This understanding allows for corrective actions to be taken to improve financial performance and efficiency. Variance analysis can be applied to various types of costs, including direct materials, direct labor, and overhead, making it a comprehensive tool for controlling expenses.

In contrast, budgeting involves planning future income and expenses based on estimates and forecasts, while cash flow management focuses on monitoring and optimizing the flow of cash in and out of the business. Cost allocation refers to how costs are distributed among various departments or products, rather than specifically analyzing differences between standard and actual costs. Thus, variance analysis is the key process that directly addresses the comparison of standard and actual costs.