Cambridge A Level Business 9609
Budgets and variances
A budget is a financial plan for a future period — what a department expects to earn or may spend — and a variance is the gap between that plan and what actually happened, labelled favourable when it helps profit and adverse when it hurts it.
The variance calculation is quick marks if you get the label right, and the label is where most candidates go wrong: a cost above budget is adverse, revenue above budget is favourable. The longer questions ask whether budgets really are the best way to control a particular business.
Updated 1 October 2026
How much it is worth
Budgets and variances: 67 marks across 36 real Cambridge 9609 AS papers — 3.7% of the total, on 13 of the 36. How that ranks against every other 9609 topic →
What budgets are for
- Planning — turning objectives into targets for each department.
- Allocating resources — deciding where money goes, and limiting spending.
- Controlling and monitoring — comparing actual results with the plan and acting on the difference.
- Measuring performance — giving managers clear targets they are accountable for, which can also motivate.
- Coordination — making departments’ plans consistent with each other.
Incremental, flexible and zero budgets
- Incremental budgeting — last year’s budget adjusted by a small amount for inflation or growth. Quick, simple, consistent and avoids conflict between managers; but it carries forward last year’s waste and encourages spending the whole budget to protect next year’s.
- Flexible budgeting — the budget adjusts with the actual level of output, so variable costs are compared fairly: a factory that made 20% more units is expected to spend more on materials.
- Zero budgeting — every budget starts from zero, and each item of spending has to be justified. Removes waste and challenges old habits; time-consuming, and managers who argue well may win more than their department deserves.
Benefits and drawbacks
The benefits are the purposes above. The drawbacks the evaluation needs:
- A budget is only as good as the forecasts behind it; external shocks make it obsolete.
- Rigid budgets can stop managers responding to opportunities.
- Targets imposed from above demotivate; unrealistic ones are ignored.
- Setting and monitoring them takes time and skill.
- They measure the financial, not quality, customer satisfaction or long-term health.
Variances: favourable and adverse
variance = actual figure − budgeted figure
| Actual above budget | Actual below budget | |
|---|---|---|
| Revenue / profit | Favourable | Adverse |
| Costs | Adverse | Favourable |
The rule behind the table: a variance is favourable if it makes profit higher than planned, adverse if it makes profit lower. Always state which — a variance figure without its label usually loses a mark.
Worked example
Worked example
A café budgeted revenue of $240 000, food costs of $90 000 and overheads of $110 000. Actual figures were $210 000, $84 000 and $118 000. Calculate each variance and the profit variance, and comment.
| $000 | Budget | Actual | Variance |
|---|---|---|---|
| Revenue | 240 | 210 | 30 A |
| Food costs | 90 | 84 | 6 F |
| Overheads | 110 | 118 | 8 A |
| Profit | 40 | 8 | 32 A |
The favourable food-cost variance is not good news. Food costs fell because fewer meals were sold — revenue fell 12.5% but food costs only about 7% — so the food cost of each meal actually rose. A flexible budget, adjusted to the meals really served, would show that; a fixed one hides it behind an “F”. The comment that earns evaluation marks asks why each variance happened before judging it.
What causes a variance
Favourable: higher demand or prices than expected, a competitor leaving the market, effective promotion, cheaper materials, lower wage rises. Adverse: weaker demand, price cuts forced by competitors, rising material or energy prices, wastage, unplanned overtime. Some causes are within the manager’s control and some are not — and a budget holder should be judged only on the first kind.
How Cambridge asks it
On the 36 AS papers Quanta holds, 20 question parts test budgets, on 13 of the papers (8 on Paper 1, 12 on Paper 2). The command words they open with:
- Explain × 9
- Calculate × 6
- Evaluate × 3
- Define × 2
By tariff — each size has its own technique:
- 2 × 2-mark, 15 × 3-markShort-answer questions (2, 3 and 5 marks) →
- 3 × 12-mark12-mark 'evaluate' questions →
Terms candidates have been asked to define or explain on this topic:
incremental budgets · zero budgeting
Common mistakes
1.Higher costs labelled favourable because the number is bigger
Label by the effect on profit: costs above budget are adverse.
2.A variance given with no label, or with a minus sign standing in for one
Write “$50 000 adverse”. The word earns the mark; the sign does not.
3.Every adverse variance treated as poor management
Higher costs may come from higher sales, or from causes outside the manager’s control. Ask why before judging.
4.Zero budgeting described as “spending nothing”
It means each budget starts from zero and every item must be justified.
Common questions
What is the difference between a favourable and an adverse variance?
A favourable variance makes profit higher than budgeted — revenue above budget or costs below it. An adverse variance makes profit lower — revenue below budget or costs above it.
How do you calculate a variance?
Actual figure minus budgeted figure, then label it favourable or adverse by its effect on profit.
What is zero budgeting?
Setting every budget from zero each period, so managers must justify all their spending rather than adjusting last year’s figure.
What is incremental budgeting?
Basing each budget on the previous one, adjusted by a small amount for inflation or planned growth.
Budgets and variances on real papers
The papers that leaned on it hardest, as a share of the paper. Each one has its own page on Quanta with the full topic breakdown:
Every 9609 past-paper question on budgets and variances
20 questions across 13 papers, 85 marks in all, newest first. Open a paper to sit it on Quanta and have these questions marked.
| Paper | Question (marks) |
|---|---|
| 9609/12/M/J/26 | Q5(b) (12, choice) |
| 9609/21/M/J/26 | Q2(b)(i) (3) |
| 9609/22/O/N/25 | Q2(b)(i) (3), Q2(b)(ii) (3) |
| 9609/23/O/N/25 | Q1(b)(i) (3), Q1(b)(ii) (3) |
| 9609/12/M/J/25 | Q6(b) (12, choice) |
| 9609/13/M/J/25 | Q2(a) (2), Q2(b) (3) |
| 9609/12/F/M/25 | Q3(b) (3) |
| 9609/11/O/N/24 | Q1(a) (2), Q1(b) (3) |
| 9609/21/O/N/24 | Q2(b)(ii) (3) |
| 9609/22/O/N/24 | Q2(b)(i) (3), Q2(b)(ii) (3) |
| 9609/11/M/J/24 | Q6(b) (12, choice) |
| 9609/22/M/J/24 | Q1(b)(i) (3), Q1(b)(ii) (3) |
| 9609/23/M/J/24 | Q1(b)(i) (3), Q1(b)(ii) (3) |
“Choice” marks a Paper 1 Section B essay — candidates answer one of two — so the “how much it is worth” figure above counts it at half its marks.
Practise budgets and variances against real mark schemes
Quanta has real Cambridge A Level Business 9609 past-paper questions, with the case study beside the answer boxes, every answer marked automatically against the published mark scheme objective by objective, and the reasoning shown — and it tracks which skills you’re missing. Free for individual students.
Start practising free