What is the function of a variance report?

The function of a variance report is to compare budgeted figures with actual figures. This report plays a crucial role in managerial accounting by highlighting discrepancies between financial plans and actual performance, which helps management to understand where they are meeting expectations and where they may need to adjust their strategies. By analyzing variances, management can identify areas of inefficiency, control costs, and make informed decisions to improve future budgeting processes. Variance reports enable organizations to maintain financial discipline and align operational performance with strategic goals. Ultimately, they are a powerful tool for performance evaluation and continuous improvement within an organization.