Certified Supply Chain Professional (CSCP) Practice Exam

What does cost variance help identify in financial performance?

1. Employee efficiency issues

2. Forecasting accuracy

3. Discrepancies between budgeted and actual expenses

4. Satisfaction of customer demands

The correct answer is: Discrepancies between budgeted and actual expenses

Cost variance is a critical metric in financial performance analysis that specifically measures the difference between budgeted costs and actual costs incurred. By identifying discrepancies between what was planned in the budget and what was actually spent, organizations can pinpoint areas of overspending or savings, which is essential for controlling financial performance. This understanding allows management to analyze spending patterns, assess operational effectiveness, and make informed decisions to adjust future budgets or resource allocations. While employee efficiency issues may indeed affect cost performance, they are not directly identified through cost variance alone. Similarly, forecasting accuracy can be evaluated through cost variances; however, forecasting encompasses broader aspects than just costs. Customer demand satisfaction is evaluated through different metrics related to sales and inventory levels, rather than through cost variances, which focus specifically on financial discrepancies. Hence, the identification of discrepancies between budgeted and actual expenses captures the core purpose of analyzing cost variance.