1. What is Budget Variance?

Budget variance is the difference between actual financial performance and budgeted amounts. It helps organizations measure financial performance and identify areas that need attention.

2. How Does the Calculator Work?

The calculator uses the budget variance formula:

Where:

• \( Actual \) — Actual amount spent or earned (currency)
• \( Budget \) — Budgeted amount (currency)

Explanation: A positive variance indicates actual exceeded budget (favorable for revenue, unfavorable for expenses). A negative variance indicates actual was less than budget (unfavorable for revenue, favorable for expenses).

3. Importance of Budget Variance Calculation

Details: Budget variance analysis is crucial for financial management, helping organizations track performance, identify trends, and make informed decisions about resource allocation and future budgeting.

4. Using the Calculator

Tips: Enter actual and budget amounts in currency format. Both values must be valid non-negative numbers.

5. Frequently Asked Questions (FAQ)

Q1: What does a positive variance mean?
A: For revenue, positive variance is favorable (more income than budgeted). For expenses, positive variance is unfavorable (more spending than budgeted).

Q2: What does a negative variance mean?
A: For revenue, negative variance is unfavorable (less income than budgeted). For expenses, negative variance is favorable (less spending than budgeted).

Q3: How often should variance analysis be performed?
A: Typically monthly or quarterly, depending on the organization's reporting cycle and the volatility of the business environment.

Q4: What are common causes of budget variances?
A: Market changes, operational inefficiencies, unexpected events, inaccurate forecasting, or strategic decisions can all cause budget variances.

Q5: How should significant variances be addressed?
A: Significant variances should be investigated to understand root causes, and appropriate corrective actions should be taken when necessary.