A favorable budget variance indicates that an actual result is better for the company (or other organization) than the amount that was budgeted.
Here are three examples of favorable budget variances:
- Actual revenues are more than the budgeted or planned revenues.
- Actual expenses are less than the budget or plan.
- Actual manufacturing costs are less than the amount budgeted for the period.
Occasionally, a favorable budget variance for revenues will be analyzed to determine whether it was the result of higher than planned selling prices, greater quantities, or a more favorable mix of items sold.
Similarly, a favorable budget variance for expenses will be analyzed to identify the cause of the lower expenses.