We have an internal debate among executives here and I am curious what everyone else here does and thinks. When thinking of sales I think it is an easy answer. Actual - Budget = Variance. If you exceed your budget in sales that is a good thing and so we can show that as a positive number. However when looking at expenses the game changes. Now exceeding your budget is not a good thing. So my question to everyone is this.
When calculating an expense budget variance which equation do you use:
Option 1:
Budget - Actual = Variance
Option 2:
Actual - Budget = Variance
Or put differently does a positive variance mean:
- You have budget available
- You have overspent