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What is the meaning of a favorable budget variance?

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:

  1. Actual revenues are more than the budgeted or planned revenues.
  2. Actual expenses are less than the budget or plan.
  3. 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.