Which statement best describes a typical cost variance analysis?

Which statement best describes a typical cost variance analysis?

• A. Identifying and forecasting future procurement strategies only.
• B. Comparing actual costs vs budget to identify variances and potential issues.
• C. Auditing supplier performance in isolation.
• D. Measuring lead times for orders.

Answer: (B)

Cost variance analysis centers on comparing what was actually spent with what was planned in the budget, then identifying the differences and what caused them. This lets you see where costs are over or under control, so you can investigate causes—like price changes, usage inefficiencies, or overhead allocation—and take corrective action to keep costs on track. That's why the best statement is the one that describes comparing actual costs to the budget to identify variances and potential issues. Other options describe other activities—planning future procurement, auditing supplier performance in isolation, or measuring order lead times—which relate to different aspects of operations rather than the cost-focused comparison and investigation that variance analysis provides.

Cost variance analysis centers on comparing what was actually spent with what was planned in the budget, then identifying the differences and what caused them. This lets you see where costs are over or under control, so you can investigate causes—like price changes, usage inefficiencies, or overhead allocation—and take corrective action to keep costs on track. That's why the best statement is the one that describes comparing actual costs to the budget to identify variances and potential issues. Other options describe other activities—planning future procurement, auditing supplier performance in isolation, or measuring order lead times—which relate to different aspects of operations rather than the cost-focused comparison and investigation that variance analysis provides.