Fluctuation Variance
Fluctuation variance is a type of variance analysis used to measure the difference between actual and budgeted costs, and is used to identify and analyze the causes of cost fluctuations in a business.
Definition
Fluctuation variance is a type of variance analysis used to measure the difference between actual and budgeted costs. It is used to identify and analyze the causes of cost fluctuations in a business. Fluctuation variance is calculated by subtracting the budgeted cost from the actual cost. The resulting variance can be either positive or negative, depending on whether the actual cost is higher or lower than the budgeted cost.
Example
For example, a company has budgeted $10,000 for a project. After the project is completed, the actual cost is $11,000. The fluctuation variance would be calculated as follows:
Actual Cost - Budgeted Cost = Fluctuation Variance
$11,000 - $10,000 = $1,000
In this example, the fluctuation variance is $1,000, which indicates that the actual cost was $1,000 higher than the budgeted cost.
Why it Matters
Fluctuation variance is an important tool for businesses to use in order to identify and analyze cost fluctuations. By understanding the causes of cost fluctuations, businesses can make informed decisions about how to manage their costs and ensure that they are staying within their budget. Additionally, fluctuation variance can be used to identify areas of potential cost savings, which can help businesses reduce their overall costs and improve their bottom line.
