Budget Variance

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Definition of 'Budget Variance'

A budget variance is the difference between the budgeted amount and the actual amount spent. Budget variances can be positive or negative. A positive budget variance occurs when the actual amount spent is less than the budgeted amount. A negative budget variance occurs when the actual amount spent is more than the budgeted amount.

Budget variances can be caused by a variety of factors, including:

* Changes in the cost of goods or services
* Changes in the volume of goods or services sold
* Changes in the exchange rate
* Changes in the tax rate
* Changes in the interest rate
* Changes in the inflation rate
* Changes in the weather
* Changes in the political climate
* Changes in the economic climate

Budget variances can have a significant impact on a company's financial performance. Positive budget variances can lead to increased profits, while negative budget variances can lead to decreased profits or even losses.

It is important for companies to monitor their budget variances and take steps to mitigate the impact of negative variances. Some of the steps that companies can take to mitigate the impact of negative budget variances include:

* Increasing prices
* Reducing costs
* Increasing sales
* Reducing expenses
* Investing in new technologies
* Changing suppliers
* Outsourcing
* Entering into joint ventures
* Divesting businesses

Budget variances are a normal part of business. However, by monitoring their budget variances and taking steps to mitigate the impact of negative variances, companies can improve their financial performance and achieve their business goals.

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