What is a variance report used for?

A variance report is primarily used to identify variances between actual performance and budgeted figures. It serves as a crucial tool for management to analyze differences in financial metrics such as revenues, costs, and profits. By comparing actual results against expected outcomes, organizations can pinpoint areas where performance does not meet expectations, facilitating timely corrective actions. This process helps in effective budgeting and financial forecasting, enabling companies to adapt strategies and improve financial performance.

The focus of a variance report lies in its ability to provide insights into financial discrepancies, which in turn allows management to understand the reasons behind these differences. For instance, if actual expenses are significantly higher than budgeted, it could signal inefficiencies or unexpected costs that must be addressed.

In contrast, other options do not align with the primary purpose of a variance report. Assessing tax filings is a separate function that involves compliance rather than financial performance monitoring. While reporting on employee compensation and tracking product sales performance are important aspects of business management, they do not specifically pertain to the variance reporting process, which centers around comparing actual results to budgeted expectations.