Holding down operating costs is an ongoing challenge for managers. The lower the costs a company incurs, the higher its profit will be. But two factors can make a target profit difficult to achieve. First, human error and unexpected machine breakdowns may cause dozens of operating inefficiencies, and each inefficiency will cause costs to rise. Second, a company may control its costs so strictly that it will use cheaper materials or labour, which may cause a decline in the quality of its product or service and in its sales. To control costs and still produce high- quality goods or services, managers must continually assess operating activities by analyzing both financial and nonfinancial data.

Required: Explain how variance analysis helps managers control costs. Focus on both the financial and nonfinancial data used in standard costing.