How to calculate a flexible budget variance

Once you have taken these steps you need to have both the expenses or actual sales and your flexible budget. The flexible budget variance will be the difference between the two of these figures. A flexible budget can account for changes, but the flexible budget variance will only occur when the amount determined is different from the actual costs.

A budget variance is an accounting term that refers to a situation where actual expenses are lower or higher than the standard or projected expenses. Budget variances indicate any difference between the amount of money a company has budgeted for a specific expense and the actual cost of the specific expense.

There are two types of budget variances:

• Favorable budget variance

A favorable budget variance happens when the actual cost of an expense is less than what a company had budgeted for. Favorable budget variances can also occur when an organization receives more profits during a fiscal year than what was initially projected.

• Unfavorable budget variance

An unfavorable budget variance happens when the actual cost of an expense is more than what a company had budgeted for, resulting in a loss for the company. Unfavorable budget variances can happen if a company receives less profit than it initially projected for a fiscal year, or if the costs the company experiences are higher than the amount it budgeted for.