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35.5 Budget vs. Actual Analysis

Overview​

Budget vs. actual analysis compares budgeted amounts to actual results. This analysis identifies variances, helps understand performance, and supports decision making and planning.

Variance Analysis​

Variance Calculation​

Variance = Actual - Budget

Variance % = (Actual - Budget) ÷ Budget × 100

Variance Types​

Variance Types:

  • Favorable variance: Actual better than budget (revenue higher, expenses lower)
  • Unfavorable variance: Actual worse than budget (revenue lower, expenses higher)

Revenue Variances​

Revenue Analysis​

Revenue Variances:

  • Compare actual revenue to budget
  • Identify favorable/unfavorable variances
  • Analyze reasons for variances
  • Take corrective action if needed
  • Adjust future budgets

Causes of Revenue Variances​

Common Causes:

  • Sales volume differences
  • Price changes
  • Market conditions
  • Competition
  • Economic factors

Expense Variances​

Expense Analysis​

Expense Variances:

  • Compare actual expenses to budget
  • Identify favorable/unfavorable variances
  • Analyze reasons for variances
  • Take corrective action if needed
  • Control costs

Causes of Expense Variances​

Common Causes:

  • Volume changes
  • Price changes
  • Efficiency changes
  • Unplanned expenses
  • Cost control issues

Variance Investigation​

Significant Variances​

Investigate:

  • Large variances (>10% or material amount)
  • Recurring variances
  • Unfavorable trends
  • Unexpected variances
  • Variances affecting profitability

Investigation Process​

Process:

  1. Identify significant variances
  2. Investigate causes
  3. Determine if action needed
  4. Take corrective action
  5. Adjust budgets if needed

Budget Revisions​

When to Revise​

Revise Budget When:

  • Significant changes in business conditions
  • Major variances indicate budget errors
  • Business strategy changes
  • Market conditions change
  • Regular review periods

Revision Process​

Process:

  1. Review current performance
  2. Assess changes
  3. Revise budget
  4. Communicate changes
  5. Monitor revised budget

Luxembourg Compliance Note​

Important Considerations:

  • Budget planning: Budgets support planning and control
  • Variance analysis: Regular analysis improves performance
  • PCN compliance: Budgets should align with PCN structure
  • Documentation: Document budget assumptions and revisions
  • Regular review: Review budgets regularly

Think It Through​

Artisan Boulangerie budgeted €10,000 revenue for January but achieved €12,000. Expenses were budgeted at €8,000 but actual were €9,000. Analyze the variances. What do they indicate?

Concepts in Practice​

Budget vs. Actual Analysis Example

TechLux Solutions January analysis:

Revenue:

  • Budget: €20,000
  • Actual: €22,000
  • Variance: +€2,000 (favorable, +10%)

Expenses:

  • Budget: €15,000
  • Actual: €16,000
  • Variance: +€1,000 (unfavorable, +6.7%)

Net Income:

  • Budget: €5,000
  • Actual: €6,000
  • Variance: +€1,000 (favorable, +20%)

Analysis: Revenue exceeded budget (favorable), expenses exceeded budget (unfavorable), but net income still exceeded budget (favorable overall).

Investigation: Revenue increase due to new customer. Expense increase due to additional project costs. Overall performance good.