Certified Supply Chain Professional (CSCP) Practice Exam

Cost variance measures the difference between what two factors?

1. Projected versus actual revenue

2. Budgeted versus actual costs

3. Standard costs versus variable costs

4. Material costs versus labor costs

The correct answer is: Budgeted versus actual costs

Cost variance specifically measures the difference between budgeted costs and actual costs incurred during a project or operational process. This metric is critical for understanding how well an organization is managing its budget and identifying areas where spending may be higher or lower than anticipated. By comparing budgeted costs, which represent the planned financial outlay, to actual costs, which reflect what was truly spent, organizations can assess performance and make informed decisions. If actual spending exceeds the budgeted amounts, it may indicate inefficiencies, unforeseen challenges, or changes in project scope that need to be addressed. Conversely, if actual costs are lower than budgeted, it could signify effective cost management or potential savings. The other options, while related to financial aspects, do not accurately encapsulate the essence of cost variance. For instance, projected versus actual revenue focuses on income rather than expenditures, standard costs versus variable costs involves specific cost elements rather than broad budgeting, and material costs versus labor costs looks at specific components of costs rather than their overall budgeted versus actual comparison.