Variance analysis

What does this tool calculate?

The tool compares the budget with the actual figures for each line you enter (revenue or expense), calculates the variance for each line and its percentage of the budget, and classifies it: favorable if it is in favor of profit (higher revenue or lower expense), and unfavorable if it works against it. It then totals budgeted and actual net profit and their variance, and identifies the largest unfavorable variance so you can start with it.

In the price and quantity analysis section, it breaks a variance down into its two causes: in sales, the selling price variance and the quantity variance; in materials, the price variance and the quantity variance; and in labor, the wage rate variance and the efficiency variance. The whole calculation runs inside your browser, and your figures are not uploaded to any server.

How to use it

1. Enter each line: its name, its type (revenue or expense), the budget and the actual. Add as many lines as you need.
2. Choose the materiality threshold (default 5%): variances below it are shown as “small” so you can focus on what matters most.
3. If you want to know the cause in a single line, choose sales, materials or labor in “What do you want to analyze?”, and enter the budgeted or standard quantity and price and the actual ones.
4. The result appears instantly, and you can download the report as PDF or an Excel file with real formulas.

The formulas

• Line variance = actual − budget, and its percentage = variance ÷ budget.
• Net profit variance = (actual revenue − actual expenses) − (budgeted revenue − budgeted expenses).
• Price variance = (actual price − budgeted or standard price) × actual quantity.
• Quantity variance = (actual quantity − budgeted or standard quantity) × budgeted or standard price.

The price and quantity variances always add up to the difference between actual (quantity × price) and budget. In sales a positive variance is favorable; in materials and labor a positive variance is unfavorable. In materials and labor, the standard quantity is what the standard required for the output actually produced, not the quantity planned to be purchased.

Example: a store compares its month with the budget

A store budgeted sales of 500,000 SAR and achieved 540,000; cost of sales was budgeted at 300,000 and came in at 333,000; salaries were budgeted at 80,000 and came in at 78,000; and rent stayed at 30,000.

Budgeted net profit is 500,000 − 410,000 = 90,000 and actual is 540,000 − 441,000 = 99,000, so the net profit variance is 9,000 SAR favorable. But the largest unfavorable variance is in cost of sales: it rose 11% while sales rose 8%, so review supplier prices and waste.

To find the cause in sales: the store planned to sell 1,000 units at 50 and sold 900 units at 55. The price variance is (55 − 50) × 900 = 4,500 favorable, the quantity variance is (900 − 1,000) × 50 = −5,000 unfavorable, and the total is 500 SAR unfavorable: raising the price did not make up for the lower quantity.

How to read the result

• Start with the largest (management by exception), and do not waste time on small variances every month.
• Favorable is not always good: saving on maintenance or marketing may cost you later, and cheaper labor may mean more hours.
• Compare at actual volume: if the level of activity changed a lot, compare against a flexible budget calculated at actual volume; otherwise you will see variances caused by volume, not performance.
• Ask about the cause, not the person: a price increase may come from the market, which calls for revising the standard, not blaming purchasing.

For the full explanation of all variance types (fixed and variable overheads and the flexible budget) with a single factory example, read the complete guide in the Accountant Library.

Frequently asked questions

Content last reviewed: 2026-11-03