Definition of Budget Variance

Budget variance refers to the difference between the actual expenses and budgeted expenses. Broadly this is used by governments, companies and even small retailer shop owners can use it to assess the differences in the budgets and actual expenses. The budgetary variance can be favorable or unfavorable.

A favorable budget variance is something that gives you benefits. For example, if you allocated $50,000 for monthly expenses and you actually spent $46000. This is a $4,000 favorable budget variance. On the other side, if you allocated the average material usage will cost $5000 per week, however, you observed that the weekly material usage actually cost you $5120. The $120 variance is an unfavorable budget variance.