Explain variances

Variances are the difference between actual costs and standard cost during an accounting period. It refers to variation of actual results with planned results. Variance analysis is a systematic process which analysis and interprets the variances. It refers to the break down of the total variances into different components. Normally, variances can take tow forms namely:

1) Favorable variances: when actual costs are less than the standard costs; and

2) Unfavorable variances: when actual costs exceeds the standard costs.

Sometimes actual results are just equal to planned results, the situation is known as zero variance.