Definition: A variance report is a budget review that states expected results versus actual results. It is a report where deviations are properly identified for informational and decision making purposes.
What Does Variance Report Mean?
A budget is an estimation of certain variables. It is a tool most frequently employed in finance to forecast probable results of certain business activity. The deviations between a budget and the actual results obtained have to be recognized and dealt with in order to evaluate the business’ results to improve the assumptions and guidelines of future budgets and to make timely decisions.
A variance report is a written document, often presented in an excel sheet or a power point presentation, where the difference between the budget and the actual results (normally provided in a financial statement) are illustrated. These deviations are presented in absolute terms (numbers) and relative terms (percents). Since the budget normally includes many rows with different income and expense’s categories, like rent, office supplies and others, these variations should also be calculated on a per-row basis.
A negative variation means that actual results underperformed the budget and a positive variation means that the budget was exceeded. These reports are normally presented to business owners and executives for them to have enough information to adjust the course of actions accordingly.
Sheets Co. is a company that provides office supplies for businesses and individuals across the country through its 250 store locations. The Board of Directors is currently reviewing the last quarter’s variance report, drafted by the Finance Department.
The budget drafted for the last quarter stated expected revenues as $96,590,000, gross income as $29,420,000 and operating income as $12,592,000. The actual results were revenues of $102,212,000 (a 5,622,00 positive difference or 6% more than expected), gross income was 28,214,000 (a 1,206,000 negative difference or 4% less than expected) and operating income was 15,218,000 (a 2,626,000 positive difference or 21% more than expected).
This report will help the Board make decisions about the course of the business to increase results over time.