Define: Variance

UK Accounting Glossary

Definition: Variance

Quick Summary

The difference between a planned, budgeted or standard cost and the actual cost incurred. An adverse variance arises when the actual cost is greater than the standard cost. A favourable variance arises when the actual cost is less than the standard cost.

What is the dictionary definition of Variance?

Dictionary Definition

In standard costing and budgetary control, variance is the difference between the standard or budgeted levels of cost (or income) of an activity and the actual costs incurred (or income achieved). If actual performance is better than standard then a favourable variable occurs, whilst conversely if actual performance is worse, then there is adverse variance.

Adverse variances are usually subject to detailed analysis in order to pinpoint it’s exact cause(s).

Full Definition

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