Variance analysis is a critical tool for financial managers to identify and analyze the differences between actual and budgeted results. By understanding the causes of these variances, managers can take corrective action to improve performance. Variance analysis can be used to analyze any type of financial data, but it is most commonly used to analyze income statements.
There are many different variance analysis techniques, but the most common is the flexible budget variance analysis. This technique compares actual results to the budget that would have been achieved given the actual level of activity. The difference between the actual results and the flexible budget is the variance.
How to Create a Variance Analysis Report in Excel
Creating a variance analysis report in Excel is a relatively simple process. The first step is to gather the necessary data. This data includes the actual results, the budget, and the actual level of activity. Once you have gathered the necessary data, you can create a variance analysis table in Excel. The table should include the following columns:
- Account
- Actual Results
- Budget
- Variance
- % Variance
Once you have created the variance analysis table, you can calculate the variances. The variance is simply the difference between the actual results and the budget. The % variance is the variance divided by the budget.
Interpreting Variance Analysis Results
Once you have calculated the variances, you need to interpret the results. The interpretation of the variance will depend on the account that is being analyzed. For example, a favorable variance in sales revenue is typically a good thing, while a favorable variance in expenses is typically a bad thing.
It is important to note that variances can be caused by a variety of factors. Some of the most common factors include:
- Changes in volume
- Changes in price
- Changes in efficiency
Once you have identified the factors that have caused the variances, you can take corrective action to improve performance.
Conclusion
Variance analysis is a powerful tool that can help financial managers to identify and analyze the differences between actual and budgeted results. By understanding the causes of these variances, managers can take corrective action to improve performance.
If you are looking for a “free variance analysis report template excel”, there are many available online. Simply search for the term and you will find a number of templates that you can download and use.
