How budget variance is calculated
Whether a variance is good or bad depends on the line type:
- Revenue: actual above budget is favourable (F); below budget is adverse (A).
- Expenses: actual below budget is favourable; above budget is adverse.
The net profit impact is the revenue variance minus the expense variance.
Example
Sales came in at ₹10.8 lakh against a budget of ₹10 lakh: +₹80,000 (8%) favourable. Travel was ₹41,500 against ₹30,000: ₹11,500 (38.3%) adverse. With salaries ₹15,000 over and marketing ₹18,000 under, profit is ₹71,500 better than budget overall.
Analysing variances
- Set a threshold. Investigate only variances above, say, 5% or ₹10,000, so you focus on what matters.
- Split price and volume. A sales variance can come from selling more units (volume) or at a different price (price or rate variance).
- Check timing. Many variances are timing differences, such as an invoice booked a month late, and reverse next period.
- Use flexed budgets. For variable costs, compare actuals with the budget adjusted to actual activity levels.
Frequently asked questions
Is a positive variance always good?
No. A positive (higher actual) variance is favourable for revenue but adverse for costs. The calculator marks each line F or A based on its type.
What is an acceptable budget variance?
Many finance teams treat variances within ±5% as normal and investigate larger ones. For small absolute amounts, a rupee threshold is often more practical.
Results are for planning and information only and are not accounting or financial advice. Check important figures with your accountant.
Project Profitability Calculator
Revenue Growth Calculator
Profit Margin Calculator
Percentage Calculator
Markup Calculator
Markup vs Margin Calculator