Comparison of Budget and Actual Achievement BUDGETS Key Definitions: Budgetary control: Involves comparing budgeted figures with actual figures and acting on this Variance: Difference between budgeted and actual figures.

Calculation and Interpretation of Variance Favourable Variances Figures better than budgeted eg lower costs, higher sales, higher profits. Adverse Variances Figures worse than budgeted eg higher costs, lower sales, lower profits

Calculation and Interpretation of Variance Accepted level of variance agreed. Too much variance, business to take action as follows: Adverse cost variance - investigate alternatives eg suppliers. Favourable variances - may highlight efficient practices which could be used elsewhere.

Calculation and Interpretation of Variance Note-Some variances may be unavoidable / outside firm ’ s control eg higher interest rates leading to higher costs.