Budgetary control
Budgetary control: the ongoing cycle of setting a budget, comparing actual results against it, and acting on the resulting variances to keep operations on plan.
See it move
A courier firm budgets €92,000 of quarterly fuel cost but actually spends €99,500, a €7,500 adverse variance. Budgetary control does not stop at that number: management investigates, traces the overspend to a diesel price spike rather than waste, renegotiates its fuel contract, and feeds the new assumption into next quarter's budget. Calculating the variance is only half of budgetary control.
The formula
Variables
- Budget variance (€)
- Actual result for the period (€)
- Budgeted result for the period (€)
The basic comparison at the heart of budgetary control; for a cost, actual below budget is favourable, actual above budget is adverse.
Check yourself
A logistics firm budgets €54,000 for vehicle maintenance this quarter. Actual maintenance spend comes to €49,200. Under budgetary control, what is the variance, and how should it be classified?