Variance Analysis
Master the art of comparing budgets to reality — and investigating WHY things went wrong (or right).
The Master Formula
Variance = Budget − Actual
Then ask: "Is this GOOD or BAD for profit?"
🧮 Interactive Variance Calculator
Adjust the actual figures to see how variances change. Watch the profit impact in real-time.
Budget
$50,000
Actual
$58,000
Variance
$8,000 (F)
↑ Higher sales = MORE revenue = GOOD for profit
Budget
$15,000
Actual
$17,500
Variance
$2,500 (A)
↑ Higher costs = OVERSPENDING = BAD for profit
Budget
$20,000
Actual
$18,000
Variance
$2,000 (F)
↓ Lower wage bill = EFFICIENCY GAIN = GOOD for profit
Budget
$8,000
Actual
$9,200
Variance
$1,200 (A)
📊 Profit Reconciliation
Budgeted Profit
$7,000
Actual Profit
$13,300
Total Profit Variance
$6,300 FAVOURABLE ✓
💡 Examiner Insight
In Paper 2, you'll be given specific figures and asked to calculate variances. Remember: Always state whether each variance is Favourable (F) or Adverse (A). Then explain the impact on profit using the context from the case study.
🎓 Key Definitions for AO1
Variance
The difference between a budgeted figure and the actual figure achieved.
Favourable Variance
A variance that has a positive impact on profit (higher revenue or lower costs than budgeted).
Adverse Variance
A variance that has a negative impact on profit (lower revenue or higher costs than budgeted).
Variance Analysis
The process of investigating the causes of variances and taking corrective action where necessary.
🏆 Examiner's Checklist
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