Budget Variance and Control

Budget Variance and Control FAQ

1. What is budget variance?

The difference between actual financial results and budgeted figures.

2. What are favorable and unfavorable variances?

Favorable variance means actual performance is better than the budget, and unfavorable means worse.

3. How can variances be classified?

Variances can be classified as sales variance, material variance, labor variance, and overhead variance.

4. What causes budget variances?

Changes in cost, sales volume, pricing, or operational inefficiencies.

5. What is a flexible budget variance?

A variance that adjusts the budget based on actual levels of activity, providing a more accurate measure of performance.

6. How are budget variances controlled?

By analyzing root causes, adjusting the budget process, and implementing corrective actions.

7. What is management by exception in budgeting?

A principle where management focuses on areas where performance deviates significantly from the budget.

8. How does variance analysis help in performance evaluation?

It highlights the areas where a company is overperforming or underperforming, helping management make informed decisions.

9. What is a spending variance?

The difference between what was budgeted for spending and what was actually spent.

10. What are some tools used in variance analysis?

Trend analysis, financial ratios, and dashboards that visualize budget performance.