Definition of a Favorable Budget Variance
A favorable budget variance means that the actual amount that occurred was better for the company (or organization) than the amount that had been budgeted.
This means a favorable budget variance will occur when:
- Actual sales are greater than budgeted sales
- Actual operating expenses are less than budgeted operating expenses
Budget variances should be analyzed to identify the reasons for the differences between the actual and the budgeted or planned amounts.
Examples of Favorable Budget Variances
Here are three examples of favorable budget variances reported by a manufacturer for a recent month:
- Sales were budgeted to be $900,000 but actual sales were $921,000. The result was a favorable sales budget variance of $21,000.
- SG&A expenses were budgeted to be $240,000 but actual SG&A expenses were $232,000. The result was a favorable SG&A expense budget variance of $8,000.
- Manufacturing overhead costs were budgeted to be $400,000 but were actually $393,000. The result was a favorable manufacturing overhead budget variance of $7,000.