Question

How should variances be used by a company?

Answer 1

Variance is a technique which shows the difference between actual, budget and the standard value of a production process. hence it let us know that if there is any difference in budgeted, standard and actual data what is the reason behind it. whether it is pa rice difference, or quantity used difference or quanitity mix difference.
SO variances should be used as a checking and verification tool that the process is done as per the standard set. if it is continuously positive than this means the standards are obsolete and we need to set the new standard as either price permanently drops or wastage reduced with good quality material or labor hour required reduced by economies of scale.