What is the primary purpose of a variance report?

The primary purpose of a variance report is to summarize discrepancies between budgeted and actual financial performance. This report is a crucial tool for management as it highlights the differences between what was expected (the budget) and what was actually achieved in terms of revenue and expenses. By analyzing these variances, management can identify specific areas where the organization either performed better or worse than anticipated, which can inform strategic decision-making.

Understanding the variances allows organizations to investigate causes behind financial performance outcomes, which could be due to changes in market conditions, operational inefficiencies, or other factors. This insight is essential for effective financial management and helps in adjusting future budgets or operational plans to better align with actual performance and organizational goals.