Budgeting and Variance Analysis

The process of planning financial performance and then analyzing the difference between plan and reality.

• Static Budget: Based on one level of output.
• Flexible Budget: Adjusted for the actual level of output.
• Variances:
  • Favorable: Actual cost < Budgeted cost.
  • Unfavorable: Actual cost > Budgeted cost.
• Price vs. Efficiency Variance: Determining if the difference was due to the cost of inputs or how they were used.