Compare actual and budgeted amounts, calculate dollar and percentage variance, solve missing values, and label expense or revenue results as favorable or unfavorable.

Required: budgeted amount and actual amount.
Controls favorable and unfavorable labeling.
Sign convention: raw variance = Actual − Budget. For expenses, a negative variance is favorable; for revenue, a positive variance is favorable.

Budget Variance Formula

The following formulas are used to calculate a budget variance.

BV = (A - F / A)*100
AB = A - F
  • Where B% is the budget percentage variance
  • AB is the absolute variance
  • A is the actual budget cost or actual outcome
  • F was the forecasted budget

To calculate budget variance, simply subtract the forecasted budget from the actual budget.

Budget Variance Definition

A budget variance is defined as either the percentage or absolute difference between a forecasted budget and the actual cost or budget that occurred.

Most often it makes sense to look at this in terms of a percentage. Then companies can analyze and compare the variance to other budgets.

How to calculate budget variance?

Example Problem #1

In this first problem, we have a new startup company that is designing a new website for their online store.

First, the original budget is laid out. For this example, the budget was determined to be $50,000.00 for the creation of the online store.

Next, after the project is complete the actual cost is determined to be $75,000.00.

Finally, using the formula for budget variance, the variance can be calculated as

B% = 75,000-50,000/50,000 *100

= 50% budget variance

Example Problem #2

In this next example, a construction team is working on a new home to be built. The original budget laid out is $300,000.

After completion of the home and a few setbacks, the total cost comes out to $400,000.

The absolute budget variance is calculated by subtracting the cost from the forecasted budget

BV = $300,000 - $400,000 = -$100,000.00

The budget variance percentage can then be calculated as:

BV% = $100,000 / $300,000 * 100 = 33.3%