How to calculate variance on spending?

Question

My maths is a little rusty, but I understand how to calculate variance in general. A colleague asked me if I knew how to calculate the percentage variance on budget spending.

Given this example:

The first budget for a project was 5000 dollars, and the department spent 2500 dollars. The next budget was 5000 dollars again, but the department spent 6000 dollars. Calculate the variance percentage on spending.

How do I interpret this question, and will someone please give me a shove in the right direction?

Answer 1

Variance in spending (without considering budget):

Average spending = (2500+6000)/2 = 4250

Variance = ((2500-4250)^2)+(6000-4250)^2)/2
              = (3062500+ 3062500)/2
              = 153150

Variance against budget:

Variance = ((2500-5000)^2)+(6000-5000)^2)/2
             = (6250000+1000000)/2
             = 3625000

Percentage variance:

153150/3625000*100 = 42.24%