What Exists When Budgeted Costs Exceed Actual Results?


1 Answers

Connor Sephton Profile
Connor Sephton answered
When budgeted costs exceed actual results it is considered to be a favorable balance. Budgeted costs are those that have been estimated using forecasted costs while actual costs are the ones that have occurred. If the budgeted costs are higher than the actual results, this means that the money will have more money left over than they initial thought they would. Being slightly generous with their budgeted costs gives a company slight leeway when it comes to paying for the workload. This is a far more favorable balance to have than when actual results exceed budgeted costs. In this example a company's budgeted costs will be less than the actual money than they had to spend. If strict budgets and spends were organized around this forecasted result then it may be difficult to produce the extra money when it is required. 

Many complex accounting tools allow companies to check their budgeted costs and actual costs on a daily basis. This can help prevent an unfavorable balance in the future. If the records are managed and analyzed on a regular basis then the forecasted or budgeted costs can be increased or decreased in accordance to any changes that may have occurred. It is essential to have the most accurate budgeted costs as possible so that the company does not suffer with difficult financial situations later on. Detailing all of the costs may help the company discover where, specifically, the actual costs are much higher than the budgeted costs. Pinpointing these particular costs can help reduce them in future workloads.

This favorable balance that occurs when budgeted costs exceed actual costs still needs to be treated with care. Companies that regularly have this balance may come unstuck if the one time they reduce their budget and the actual cost makes the balance unfavorable.

Answer Question