What is budget variance?

Budget variance refers to the difference between the actual financial performance and the budgeted expectations for a specific period. This concept is crucial for evaluating how well an organization adheres to its financial plan. When the actual amount spent deviates from what was budgeted, this variance can be favorable or unfavorable, depending on whether actual spending was below or above the budgeted figures.

Understanding budget variance helps managers identify areas where performance is not aligning with expectations. This can inform future budgeting processes and operational strategies. For instance, if expenses are consistently higher than budgeted, it may signal the need for tighter cost controls or adjustments in the budget to realistically reflect operating conditions.

The other options reflect different financial metrics that do not specifically encompass the concept of budget variance. The total amount of costs incurred could refer to various aspects of financial management but lacks the comparative focus with a budget. The difference between revenues and expenditures is a measure of net income or loss, while the overall profit or loss in a financial year provides insights into a company's profitability, but again, does not specifically address the comparison between actual spending and budgeted amounts. Therefore, identifying budget variance as the actual spent versus the budgeted amount precisely captures the essence of this concept in financial analysis.