That portion of the variance caused by a difference between the actual and expected price of the goods or services acquired. A more refined approach is to split this difference into two elements, which are: The most simple form of cost variance analysis is to subtract the budgeted or standard cost from the actual incurred cost, and reporting on the reasons for the difference. Take corrective action to bring the incurred cost into closer alignment with the expected cost Investigate the reasons for the difference It is comprised of the following steps:Ĭalculate the difference between an incurred cost and an expected cost Cost variance analysis is a control system that is designed to detect and correct variances from expected levels.
