Certified Supplier Quality Professional (CSQP) Practice Exam

Which of the following best describes a variance in financial terms?

1. The approved total budget of a project

2. The difference between budgeted and actual revenues and costs

3. The predicted costs before execution

4. Actual incomes and expenditures

The correct answer is: The difference between budgeted and actual revenues and costs

A variance in financial terms specifically refers to the difference between what was planned (the budgeted amounts) and what was actually incurred (the actual revenues and costs). This measurement is crucial for financial analysis and performance evaluation, as it allows organizations to assess how well they are adhering to their financial plans and make necessary adjustments. Understanding variances helps in identifying areas of over-expenditure or underperformance in revenue generation, which can inform future budgeting and strategic planning processes. In contrast, other choices represent different financial concepts. The approved total budget of a project outlines the financial resources allocated to it but does not account for variances. Predicted costs before execution relate to budgeting forecasts rather than actual outcomes, which do not capture the concept of variance. Actual incomes and expenditures may be relevant in discussions of financial performance but do not highlight the specific comparison that defines a variance. Therefore, the option that emphasizes the difference between budgeted and actual figures is the most accurate interpretation of a variance.