What is meant by 'variance' in the context of budgeting?

In the context of budgeting, 'variance' refers to the difference between what was planned or budgeted and what actually occurred in terms of financial performance. This concept is crucial for businesses as it helps them assess their performance against expectations. When managers analyze variances, they can identify areas where financial results deviated from the budget, allowing them to take corrective actions if necessary. This can lead to improved future budgeting accuracy and better financial decision-making.

Understanding variances enables organizations to understand their financial health, whether they are overspending or underspending in certain areas, and which aspects of their operations may need adjustment. The analysis of variances can provide insight into operational efficiencies, market dynamics, and other factors affecting financial performance. Thus, option B highlights the fundamental purpose of variance in budgeting, which is to measure and compare actual financial outcomes with planned goals.