Definition:
A budgetary variance is the difference between the budgeted amount and the actual amount for a particular expense or revenue item. It can be either favorable (positive) or unfavorable (negative).
Types of budgetary variances:
- Favorable variance: When the actual amount is less than the budgeted amount for an expense or greater than the budgeted amount for revenue.
- Unfavorable variance: When the actual amount is greater than the budgeted amount for an expense or less than the budgeted amount for revenue.
Why are budgetary variances important?
- Performance evaluation: Budgetary variances can be used to evaluate the performance of a company’s departments or individuals.
- Problem identification: Unfavorable variances can help to identify areas where costs are higher than expected or revenue is lower than expected.
- Decision-making: Budgetary variances can be used to inform decision-making about resource allocation and spending priorities.
In essence, budgetary variances are the differences between budgeted amounts and actual results, and they are a valuable tool for evaluating performance and making informed decisions.
