How do you calculate a budget variance?

Subtract the budgeted amount from the actual amount. Divide the difference by the budget for the percentage variance. $52,800 actual against a $48,000 budget is a $4,800 (10%) variance.

What is a favorable and an unfavorable variance?

For expenses, spending less than budget is favorable and spending more is unfavorable. For revenue it is the reverse: earning more than budget is favorable.

What is the difference between a volume and a rate variance?

A volume (quantity or efficiency) variance comes from using more or fewer hours than budgeted, priced at the budgeted rate. A rate (price) variance comes from paying a different hourly rate than budgeted, for the hours actually worked. Together they make up the total labor variance.

Is an unfavorable variance always bad?

No. A higher census or acuity than budgeted raises costs for a good reason. That is why managers explain variances: a volume variance driven by more patients is expected, while overtime driven by poor scheduling is not.

Free tool · CNML® exam topic

Budget variance calculator

Actual minus budget, in dollars and percent, labeled favorable or unfavorable. For salary lines, split the variance into a volume (hours) and a rate (pay) part.

Result

Variance (actual − budget): +$4,800
Percent of budget: +10.0%
Favorable or unfavorable: Unfavorable

Actual spending was $4,800 above budget, which is unfavorable for an expense line.

Labor variance: volume vs rate

Result

Total labor variance: +$12,400 (U)
Volume (efficiency) variance: +$9,000 (U)
Rate (price) variance: +$3,400 (U)
Cost: $156,400 actual vs $144,000 budget

U = unfavorable (costs more than budget), F = favorable. Volume and rate variances add up to the total.

Variance formulas

Variance = actual − budget; percent variance = variance ÷ budget × 100
Volume (efficiency) variance = (actual hours − budgeted hours) × budgeted rate
Rate (price) variance = (actual rate − budgeted rate) × actual hours
Total labor variance = actual hours × actual rate − budgeted hours × budgeted rate

Worked example

Overtime and agency spending of $52,800 against a $48,000 budget is a variance of +$4,800 (+10.0%), unfavorable for an expense line.

For salaries: 3,200 hours were budgeted at $45 ($144,000) and 3,400 hours were worked at $46 ($156,400). The total variance is+$12,400 (U). Of that, 200 extra hours × $45 = +$9,000 (U) is volume, and $1 more per hour × 3,400 hours =+$3,400 (U) is rate. A manager would next ask why: higher census, higher acuity, orientation hours, or overtime instead of straight time.

Variance analysis on the CNML exam

The CNML® content outline expects nurse managers to monitor the department budget, identify variances and adjust the budget when variances call for it. Pair this with the HPPD calculator, since a productivity miss is often what drives a labor volume variance.

Test yourself: a CNML-style question

A unit budgeted 3,200 nursing hours at $45 an hour but used 3,400 hours at $45. Which variance does this create?

A favorable rate variance
An unfavorable volume (efficiency) variance
An unfavorable rate variance
No variance

Show answer

B. An unfavorable volume (efficiency) variance

The rate matched the budget, so there is no rate variance. 200 extra hours × $45 = $9,000 more than budget: an unfavorable volume (efficiency) variance.

Questions like this come up in the Business Skills and Principles domain of the CNML® exam. The 361 questions in the app each come with a written explanation.

FAQ

How do you calculate a budget variance?: Subtract the budgeted amount from the actual amount. Divide the difference by the budget for the percentage variance. $52,800 actual against a $48,000 budget is a $4,800 (10%) variance.
What is a favorable and an unfavorable variance?: For expenses, spending less than budget is favorable and spending more is unfavorable. For revenue it is the reverse: earning more than budget is favorable.
What is the difference between a volume and a rate variance?: A volume (quantity or efficiency) variance comes from using more or fewer hours than budgeted, priced at the budgeted rate. A rate (price) variance comes from paying a different hourly rate than budgeted, for the hours actually worked. Together they make up the total labor variance.
Is an unfavorable variance always bad?: No. A higher census or acuity than budgeted raises costs for a good reason. That is why managers explain variances: a volume variance driven by more patients is expected, while overtime driven by poor scheduling is not.

Sources

Checked against these sources on November 3, 2026. For education and CNML® exam preparation only — not a substitute for your organization’s finance, HR and staffing policies or its official reports. Calculations run in your browser; nothing you enter is sent anywhere.