Budget versus actual analysis

A budget-versus-actual report is only useful if it explains why results differ from plan and what happens next. The standard structure is an operating statement that walks from budgeted profit to actual profit, one variance at a time:

• Sales price variance = (actual price − budgeted price) × actual units. Did we sell at the planned price?
• Sales volume variance = (actual units − budgeted units) × budgeted contribution per unit. What did selling more or fewer units do to profit? (Valued at contribution, not price, because each extra unit also brings variable cost. This is the marginal-costing convention used here; an absorption-costing system values it at standard profit per unit instead.)
• Variable cost variances = flexed budget (budgeted cost per unit × actual units) − actual cost. Detailed standard costing splits these into price and usage.
• Fixed cost spending variance = budgeted − actual fixed costs.

Tidewell Pet Foods budgeted to sell 20,000 cases of dog food at 30, with variable costs of 18 a case and fixed costs of 150,000. In March it raised prices and sold 18,500 cases for 582,750 (31.50 a case). Variable costs were 345,950 and fixed costs 156,000.

Good commentary covers the significant variances only (Tidewell's own policy: lines over 5% of the flexed budget or 10,000), and for each says what happened, why, who owns it, and what will be done — plus whether it will recur. It also links related variances: a price rise that cuts volume is one decision, not two separate surprises.