In budget

Budget

A budget is a financial plan and a list of all planned expenses and revenues. It is a plan for saving, borrowing and spending. A budget is an important concept in microeconomics, which uses a budget line to illustrate the trade-offs between two or more goods...

ing (or management accounting

Management accounting

Management accounting or managerial accounting is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis to make informed business decisions that will allow them to be better equipped in their management and control...

 in general), a variance is the difference between a budgeted, planned or standard amount and the actual amount incurred/sold. Variances can be computed for both costs and revenues.

The concept of variance is intrinsically connected with planned and actual results and effects of the difference between those two on the performance of the entity or company.

Types of variances

Variances can be divided according to their effect or nature of the underlying amounts.

When effect of variance is concerned, there are two types of variances:

• When actual results are better than expected results given variance is described as favorable variance. In common use favorable variance is denoted by the letter F - usually in parentheses (F).
• When actual results are worse than expected results given variance is described as adverse variance, or unfavourable variance. In common use adverse variance is denoted by the letter A or the letter U - usually in parentheses (A).

The second typology (according to the nature of the underlying amount) is determined by the needs of users of the variance information and may include e.g.:

• Variable cost variances
  • Direct material variances
  • Direct labour variance
    Direct labour variance
    Direct labour cost variance is the difference between the standard cost for actual production and the actual cost in production.There are two kinds of labour variances. Labour Rate Variance is the difference between the standard cost and the actual cost paid for the actual number of hours...
    
    s
  • Variable production overhead variances
• Fixed production overhead variances
• Sales variance
  Sales variance
  Sales variance is the difference between actual sales and budget sales. It is used to measure the performance of a sales function, and/or analyze business results to better understand market conditions....
  
  s

Variance Analysis

Variance analysis, in budgeting (or management accounting

Management accounting

Management accounting or managerial accounting is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis to make informed business decisions that will allow them to be better equipped in their management and control...

 in general), is a tool of budgetary control by evaluation of performance by means of variances between budgeted amount, planned amount or standard amount and the actual amount incurred/sold. Variance analysis can be carried out for both costs and revenues.

See also

• Budgeting
• Non-profit organization
  Non-profit organization
  Nonprofit organization is neither a legal nor technical definition but generally refers to an organization that uses surplus revenues to achieve its goals, rather than distributing them as profit or dividends...
  
  
• Standard budget
  Standard budget
  The main way standard budget are established is by using historical information. If standards are set using historical information theymay become out of date quickly.A Standard Budget is a vehicle for Variance...
  
  
• Flexible budget
• Rolling budget
• Activity-based budgeting (ABB)
• Controllable items
• Non-controllable items
• Standard
  Standardization
  Standardization is the process of developing and implementing technical standards.The goals of standardization can be to help with independence of single suppliers , compatibility, interoperability, safety, repeatability, or quality....
  
  s
• Motivation
  Motivation
  Motivation is the driving force by which humans achieve their goals. Motivation is said to be intrinsic or extrinsic. The term is generally used for humans but it can also be used to describe the causes for animal behavior as well. This article refers to human motivation...
  
  
• Performance evaluation
  Performance Evaluation
  Performance Evaluation is an international journal published by Elsevier. The current Editor-in-chief is Philippe Nain. The journal was previously published by North-Holland Publisher.-Editors:*1981–1986 Hisashi Kobayashi*1987–1990 Martin Reiser...
  
  
• direct material total variance
  Direct material total variance
  In variance analysis direct material total variance is the difference between the actual cost of actual number of units produced and its budgeted cost in terms of material...
  
  
• direct material price variance
  Direct material price variance
  In variance analysis direct material price variance is the difference between the standard cost and the actual cost for the actual quantity of material used or purchased...
  
  
• direct material usage variance
  Direct material usage variance
  In variance analysis direct material usage variance is the difference between the standard quantity of materials that should have been used for the number of units actually produced, and the actual quantity of materials used, valued at the standard cost per unit of material...