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

Compare actual and budgeted amounts.

US dollars. Signed variance is Actual − Budget; context controls the favorable/unfavorable label.

Negative values represent refunds, reversals or negative revenue.

Budget Variance Formula

The following formulas are used to calculate a budget variance.

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

To calculate signed budget variance, subtract the forecasted budget from the actual amount. Divide by the positive forecasted budget and multiply by 100 for the percentage. A zero budget has no defined percentage variance. For expenses a negative variance is favorable; for revenue a positive variance is favorable.

Budget Variance Definition

A budget variance is defined as either the percentage or signed dollar 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 follows:

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 signed dollar variance is calculated by subtracting the forecasted budget from the actual cost.

AB = $400,000 – $300,000 = +$100,000.00

The budget variance percentage can then be calculated as:

BV% = $100,000 / $300,000 * 100 ≈ +33.3% (over budget and unfavorable for an expense)