Budget vs. actual comparison
In one sentenceA report that puts each actual item next to its budget figure and shows the difference in amount and percentage, and whether it is favorable or unfavorable.
Simply put
This comparison is what makes the budget useful. You prepare it monthly or quarterly and focus only on the large differences, not on every riyal.
Revenue above budget is favorable, and an expense above budget is unfavorable. What matters next is knowing the reason and deciding what to do.
Worked example
A small factory estimated the electricity expense for a month at 8,000 SAR, and the actual bill came to 9,200 SAR.
Actual9,200 SAR
Budget8,000 SAR
Variance percentage1,200 ÷ 8,000 = 15%
Variance = 9,200 − 8,000 (unfavorable)1,200 SAR
Formula: Actual − budget, and percentage = variance ÷ budget
Don't confuse it with
Flexible budgetIf the volume of activity changed, compare actual figures with the flexible budget, not the original one, so that no variance appears that is caused only by volume.