1. in statistics, measure of a dispersion of probability distribution. It is the square of the STANDARD DEVIATION. For example, if the standard deviation is 20, the variance is 400.

2. difference of revenues, costs, and profit from the planned amounts. One of the most important phases of responsibility accounting is establishing standards in costs, revenues, and profit and establishing performance by comparing actual amounts with the standard amounts. The differences (variances) are calculated for each responsibility center, analyzed, and unfavorable variances are investigated for possible remedial action.

3. in COST ACCOUNTING, deviation between the actual cost and the standard cost. If actual cost exceeds standard cost, an unfavorable variance exists. A variance can be calculated for different cost items such as manufacturing costs (i.e., direct material, direct labor, and overhead), selling expenses, and administrative expenses. The reasons for a variance should be identified and corrective action taken. For example, actual production is 80 units. Standard cost per unit is $5 while actual cost per unit is $6. The unfavorable variance equals $80 ($400 vs $480).