Variance analysis serves which primary purpose?

• A. To calculate taxes
• B. To forecast future sales
• C. To allocate variances to departments
• D. To assign responsibility for variances so that action can be taken to correct the situation

Answer: (D)

Variance analysis focuses on identifying why actual results differ from what was planned and, crucially, on assigning responsibility so that action can be taken to fix the situation. By comparing actual costs and revenues to standards or budgets, it highlights where variances are coming from and who is accountable for them, which drives corrective steps—such as adjusting processes, renegotiating prices, or tightening controls. This accountability and action-oriented purpose is what makes variance analysis valuable for performance management. The other options aren’t its primary aim: taxes are handled in tax planning, forecasting future sales is a budgeting/forecasting task rather than variance analysis, and while variances can be traced to departments, the essential point is linking them to responsibility and corrective action.