A budget variance is the difference between the amount you planned to spend and the amount you did spend. It’s the difference between the revenue you planned to receive and the income you actually did receive.
Let’s say you plan to pay your salesmen $10,000. But what if you pay them $12,000? You would say you have an unfavorable budget variance of $2,000 because you paid $2,000 more than you had budgeted. If you paid them $8,000, you would have a favorable budget variance because you paid them less than you intended. If you budgeted income of $40,000 and you actually had sales of $50,000, we would say you had a favorable budget variance of $10,000 because you took in $10,000 more than you budgeted. If you had sales of $35,000 we would say you had an unfavorable variance of $5,000 because you took in $5,000 less than you planned.
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