Budget vs actual variance: formula, example and report
Last reviewed 2026-09-28
Budget vs actual variance is actual minus budget. Variance percentage is that variance divided by the absolute budget. Label each line favourable or unfavourable by whether it helped profit, not by its sign, and investigate the lines that cross a threshold you set in advance. The worked report below does all four.
The formulas
- Variance = actual − budget
- Variance % = (actual − budget) ÷ |budget| × 100
- Favourable when income is above budget or a cost is below it; unfavourable the other way round.
- No budget: the percentage is n/a. It is not 0% and it is not 100%.
A worked monthly budget vs actual report
One month for a small business, with the investigation rule set at a variance of at least $1,000.00 and at least 5% of budget.
| Line | Budget | Actual | Variance | Variance % | F / U | Investigate? |
|---|---|---|---|---|---|---|
| Revenue | $120,000.00 | $112,800.00 | −$7,200.00 | −6.0% | U | Yes |
| Cost of goods sold | $48,000.00 | $46,500.00 | −$1,500.00 | −3.1% | F | |
| Gross profit | $72,000.00 | $66,300.00 | −$5,700.00 | −7.9% | U | Yes |
| Salaries | $38,000.00 | $38,000.00 | $0.00 | 0.0% | on budget | |
| Marketing | $9,000.00 | $12,150.00 | +$3,150.00 | +35.0% | U | Yes |
| Software subscriptions | $2,400.00 | $2,280.00 | −$120.00 | −5.0% | F | |
| Rent | $6,000.00 | $6,000.00 | $0.00 | 0.0% | on budget | |
| Contractors | $0.00 | $1,750.00 | +$1,750.00 | n/a | U | Yes |
| Total operating expenses | $55,400.00 | $60,180.00 | +$4,780.00 | +8.6% | U | Yes |
| Operating profit | $16,600.00 | $6,120.00 | −$10,480.00 | −63.1% | U | Yes |
Revenue is −$7,200.00 (−6.0%) and operating profit −$10,480.00 (−63.1%): a 6.0% revenue miss turned into a much larger profit miss, because most costs did not fall with revenue.
Reading it line by line
- Marketing is +$3,150.00, +35.0%. A positive variance on a cost line is unfavourable. This is the line to explain first.
- Software subscriptions is −$120.00 (−5.0%): favourable, and below the $1,000.00 amount threshold, so it is not investigated even though the percentage reaches 5%.
- Contractors had no budget and cost $1,750.00. Its percentage is n/a, and it is flagged on the amount alone. An unbudgeted cost is usually a decision somebody made; the report should name it.
- Cost of goods sold is −$1,500.00, favourable, and not flagged. That is the line most likely to mislead, as the next section shows.
When a favourable variance is not good news
Cost of goods sold was budgeted at $48,000.00 for $120,000.00 of revenue. Revenue came in at $112,800.00, so at the budgeted cost ratio cost of goods sold should have been $45,120.00. It was $46,500.00.
| Cost of goods sold | Amount |
|---|---|
| Caused by the lower revenue (flexed − budget) | −$2,880.00 |
| Caused by cost per sale (actual − flexed) | +$1,380.00 |
| Static variance | −$1,500.00 |
The −$1,500.00 “saving” is the lower revenue. Each sale actually cost more than planned, by $1,380.00 in total. The static report hides that; a flexed comparison shows it. The full static and flexed budget method is in the budget variance analysis explainer.
What a budget vs actual report should say
- Budget, actual, variance and variance % for every line, for the same period and currency.
- F or U on every line, so nobody has to remember which lines are costs.
- The investigation rule, stated on the report.
- For each flagged line, an explanation that points to the records, and an owner where there is none yet. “Timing” is not an explanation until somebody says which invoice moved.
- Anything nobody can explain yet, listed as unexplained rather than left out.
The same layout, with every formula, is in the free variance analysis template.
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Common questions
- What is the budget vs actual variance formula?
- Variance equals actual minus budget. Variance percentage equals that variance divided by the absolute value of the budget, times 100. For the revenue line in the example, $112,800.00 minus $120,000.00 is −$7,200.00, or −6.0%.
- Is a positive variance good?
- Only on an income line. On a cost line a positive variance means spending was over budget, which is unfavourable. Marketing in the example is +$3,150.00, a positive number and an unfavourable variance.
- What if a line had no budget?
- Its variance percentage does not exist, so report it as n/a rather than 0% or 100%. The contractors line in the example had no budget and cost $1,750.00, so it is flagged on the amount alone.
- Which variances should be investigated?
- Set a rule before looking at the numbers, usually an amount and a percentage that must both be exceeded, so that big percentages on tiny lines and small percentages on huge lines are both handled. The example uses $1,000.00 and 5%.
Illustrative figures. General information, not accounting advice. Last reviewed 2026-09-28.