What is meant by budget variance?

The concept of budget variance refers to the difference between what was originally planned for spending and what was actually spent during a given period. This measure is crucial for organizations to understand how well they are adhering to their financial plans. By identifying variances, whether favorable (where expenses are lower than anticipated) or unfavorable (where expenses exceed the budget), managers can analyze the reasons behind these differences, enabling them to make informed adjustments in future budgeting and spending decisions.

In contrast, the other options do not encapsulate the essence of budget variance. The total budget planned for the year simply represents an overall financial target without addressing any discrepancies between spending and budget goals. The amount spent on unnecessary expenses could be a component of budget variance but does not encompass the broader context of actual versus budgeted amounts. Lastly, the comparison of income to expenses is a metric of profitability rather than budget variance, which focuses specifically on spending outcomes against predetermined budgets.