Evidence and reasoning
Variance analysis
- Evidence and reasoning
Definition
Breaking a budget variance down into its causes, such as price, volume, mix or timing, so you know why actual results differ from plan and what to do about it.
For your role
Choose your role to see what this term means in your work.
Why it matters
A variance on its own says something is off. Knowing whether it is price, volume or timing decides the action, and stops teams from fixing the wrong thing.
Where it is used
Month-end reporting, budget reviews and cost control. Used by management accountants, FP&A analysts, cost accountants and operations managers.
How to calculate it
Total variance = sum of the component variances
Sales price variance = (actual price - budget price) × actual volume
Sales volume variance = (actual volume - budget volume) × budget price (or budget margin)
Worked example
Raket Parts B.V. beat an illustrative Q3 2025 revenue budget of €18,000,000 by €476,412. Splitting it by revenue stream (actuals from the ledger, budgets illustrative):
Built-to-order parts: actual €9,141,935, budget €8,600,000, variance +€541,935
Catalogue parts: actual €6,382,732, budget €6,500,000, variance -€117,268
Flight computers: actual €2,951,745, budget €2,900,000, variance +€51,745
The three add up to €476,412. The next step is to split the catalogue shortfall into price and volume using the order lines (net_unit_price and qty_ordered), because a price cut and a lost customer need different responses.
Raket Parts B.V. is a fictional company created for Insyt.
Definitions vary. Which components are split out (price, volume, mix, efficiency, timing) and whether volume variances are valued at budget price or budget margin differ between organisations. Check how your organisation calculates it.