Variance exists when there is a difference between the budgeted figures and the actual outcome.
Variance = Actual outcome − Budgeted outcome
Favourable variance exists when discrepancies are financially beneficial to the organisation (i.e., when the actual figures are higher than the).
Adverse variance exist when the discrepancies are financially detrimental to the organisation. They occur when actual costs are higher than expected, or when actual revenue is lower than budgeted (i.e., underselling).
