Hi Sharu,
When calculating varaiances system determines not only the total variances (which as you correctly pointed out can be calculated as difference between Actual Costs and Actual Allocated Costs).
System also calculates differen variance categories eg. price, quantity, lot size.
For this calculation system needs Target Costs.
There are 2 variance types: Input varaiances and Output variances.
Input Variances = Actual Costs - Target Costs
Output Varaiances = Tagrget Costs - Actual Allocated Costs
Total Variance = Input Varainces + Output Varaiance = (Actual Costs - Target Costs) +
(Tagrget Costs - Actual Allocated Costs) = Actual Costs - Actual Allocated Costs.
Regards,
Szymon