University of Central Florida (UCF) ACG2071 Principles of Managerial Accounting Practice Test 1

A budget variance specifically highlights the differences between budgeted and actual performance. This comparison is fundamental in managerial accounting as it allows management to assess how well the organization is adhering to its financial goals. By analyzing budget variances, managers can identify areas of overperformance where actual results exceed budgeted figures, as well as underperformance where results fall short of expectations.

Understanding variances helps in decision-making, enabling managers to take corrective actions if necessary—whether to adjust operations, improve cost control, or reallocate resources. This makes budget variance an essential tool for financial planning and evaluation, helping teams understand financial health and operational efficiency.