Budget Variance

What is 'Budget Variance'

Budget variance is a periodic measure used by governments, corporations or individuals to quantify the difference between budgeted and actual figures for a particular accounting category. A favorable budget variance refers to positive variances or gains; an unfavorable budget variance describes negative variance, meaning losses and shortfalls. Budget variances occur because forecasters are unable to predict the future with complete accuracy. As a result, some variance should be expected when budgets are created.

BREAKING DOWN 'Budget Variance'

Budget variances can result from two sources - the things that can be controlled and things that cannot. A poorly planned budget, for example, is a controllable factor. Likewise, things like labor costs can be controlled by taking measures such as prohibiting overtime. Uncontrollable factors are often external and arise from occurrences outside of the company such as a natural disaster.

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RELATED FAQS
  1. How is an unfavorable variance discovered?

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  2. What does an unfavorable variance indicate to management?

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  3. What is price variance in cost accounting?

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