BUDGET VARIANCE

Summary

Budget variance is a key financial control measure that shows how well an organization stayed on track with its financial plan. It's calculated by subtracting the budgeted amount from the actual amount (Actual - Budget). A positive variance means you spent more or earned more than planned, while a negative variance means you spent less or earned less than expected. This tool helps managers identify areas where performance differed from expectations and take corrective action.

Usage Context

Essential for understanding financial control systems, performance evaluation, budgeting processes, and managerial decision-making throughout the course

Common Confusions

• Thinking positive variances are always good (positive expense variance means overspending)
• Confusing budget variance with budget itself
• Not understanding that variance can be calculated for both revenues and expenses
• Mixing up favorable vs. unfavorable with positive vs. negative signs