Budget variance reasoning: guide and free practice

Define the sign convention

In this lesson, actual minus budget is the signed variance. A positive cost variance means overspending and is adverse. A positive revenue variance means revenue exceeded plan and is favourable. Always state the convention because reports may use the opposite sign.

Use the budget as the reference

To express overspend as a percentage of budget, divide the excess by the budget, not by the actual cost. For a remaining budget, subtract total spending to date from the authorised total.

Keep periods consistent

A monthly actual cannot be compared directly with an annual budget without an allocation assumption. If an annual plan is evenly allocated, a quarter represents one fourth; if it is seasonal, the question must provide the period allocation.

Separate price and quantity

When a purchase cost changes, both unit price and quantity may contribute. A simple price comparison holds quantity constant. Total spending alone does not show which driver changed, so avoid attributing an overspend without the necessary figures.

Build a reconciliation

List individual category differences and check that they sum to the total difference. Savings in one category can offset overspending in another. The exercises use hypothetical business budgets and explicit assumptions so the task is numerical interpretation rather than accounting policy.

Your first practice session

Signed variance means actual minus budget in this set. For costs, overspending is adverse. For revenue, exceeding budget is favourable. Use the budget as the percentage base.

Try 10 questions with explanations

Continue learning

• Finance and accounting aptitude
• Percentage change in workplace data
• Interpreting workplace tables

About this practice

These are independently written teaching questions. A practice score helps you review your answers; it is not a validated hiring prediction or an official employer score.