Final answer:
When calculating a cost variance, the actual cost is compared to what the cost should have been. Cost variance is a term used in accounting to assess deviations between actual and expected costs. It helps businesses identify areas where they may have overspent or saved money.
Step-by-step explanation:
When calculating a(n) cost variance, the actual cost is compared to what the cost should have been. Cost variance is a term used in accounting to assess deviations between actual and expected costs. It is commonly used by businesses to track their expenses and evaluate their financial performance.
For example, let's say a company expected to spend $10,000 on a project, but the actual cost turned out to be $12,000. The cost variance would be $2,000. A positive cost variance indicates that the actual cost is higher than the expected cost, while a negative cost variance means that the actual cost is lower than expected.
Cost variance helps businesses identify areas where they may have overspent or saved money, allowing them to make informed decisions to control costs and improve financial performance.