Adverse variance

This discrepancy in the budget occurs when profit is lower than expected, due to costs being higher than expected and/or revenues being lower than predicted.

Budget

A detailed financial plan for the future, usually involving the expected costs and revenues or a cash flow forecast, for a pre-determined period of time.

Cost centre

A section or division of a business that has responsibility for its own operational costs. It is held accountable for its departmental expenditure.

Favourable variance

This discrepancy in the budget occurs when profits are higher than expected, due to lower than expected costs and/or higher than predicted revenues.

Profit centre

A section or division of a business that has responsibility for both costs and revenues generated within the department. It is held accountable for the amount of profit generated.

Variance

Refers to a discrepancy between the planned (budgeted) item of expenditure or revenue and the actual amount.

Variance analysis

This is the management process of comparing planned and actual costs and revenues, in order to measure and compare the degree of budgetary success.