Definition: A fixed budget performance report is a analytical report that compares actual performance numbers during a period with the predicted numbers set in the fixed budget. This report looks similar to an income statement with one column for the fixed budget numbers and another column for the actual number achieved during the period. There is also a third column that calculates the difference between the predicted and actual numbers.
What Does Fixed Budget Performance Report Mean?
This different between the actual and predicted performance numbers are called favorable or unfavorable variances.
Favorable variances occur when the actual number are better than the predicted numbers. For example, assume management thought that it would incur $10,000 of production costs during the period. After the fiscal year was over, they discovered that only $9,500 was used in the production phase during the year. In other words, the production department came in under budget.
Unfavorable variances are just the opposite. When revenues are predicted too high or expenses are predicted too low compared with the actual results, the fixed budget isn’t met.
Example
The fixed budget performance report’s purpose is to point out the areas where the company met the budget expectations and the areas where it failed to meet the predictions. This report gives management a powerful analytical tool to identify what parts of the business are performing well and what segments need more oversight.
Each line item with a favorable variance is usually marked with an F and each item with an unfavorable variance is marked with a U on the report, so management can easily identify the problem areas.
