How can variance analysis benefit a manager?

Variance analysis is a powerful tool for managers as it focuses on identifying operational inefficiencies and areas where corrective actions can be implemented. By comparing actual performance with budgeted or expected performance, a manager can pinpoint specific areas where operations are not meeting expectations. This allows for a more targeted approach to making improvements.

For example, if a variance analysis reveals that actual costs significantly exceed budgeted costs in a particular department, the manager can investigate that specific area to determine the causes of the overrun, such as increased material costs or inefficiencies in labor usage. The insights gained from variance analysis guide decision-making, enabling managers to implement strategies that enhance efficiency, control costs, and improve overall performance.

In contrast, pinpointing all past mistakes, as suggested in one of the choices, is not the sole focus of variance analysis; rather, it emphasizes the future-oriented goal of performance improvement. Similarly, while profit margins are an important aspect, variance analysis encompasses a broader range of metrics beyond just profitability. Lastly, while variance analysis is related to budgeting, it does not eliminate the need for budgets; instead, it relies on them as a foundation for performance evaluation.