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Cost variance is the difference between the actual cost incurred and the planned or budgeted cost of the company. Cost variance analysis is a complex subject and understanding the concepts of this subject might be difficult for students. As such, a student may need professional cost variances analysis assignment help.
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Cost variances analysis
As discussed above, cost variance analysis is a tool or control system that is designed to understand and correct variances from expected levels. It is inclusive of the following steps:
a) Calculate the difference between the actual cost incurred and the budgeted cost.
b) Investigate the actual reasons for this difference in the cost.
c) Report this to the management.
d) And finally, take corrective steps to reduce the difference between actual and budgeted cost.
The simplest way to calculate cost variance analysis is to subtract the budgeted cost from the actual cost incurred and reporting the reasons for the difference in this cost.
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The difference can be further split into two elements.
1) Price variance: Variance caused by the difference between the actual price and expected price of the goods or services acquired.
2) Volume Variance: Variance caused by a change in the volume of the goods and services ordered.
In a case of difference in the actual cost and the budgeted cost, the above two elements can be taken into consideration to find out if the reason is the price of the product or volume.
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