The size of variance, as both a percentage and a dollar amount, that a report treats as worth explaining.
A materiality threshold sets which variances in a budget vs actual or month-over-month report are big enough to highlight and explain. The reliable form has two conditions: the line must move by a meaningful percentage and a meaningful dollar amount. Either test alone floods the page, in opposite directions.
Flag a line when |variance %| exceeds the percentage limit and |variance $| meets the dollar limit. In Excel conditional formatting: =AND(ABS($E2)>0.05,ABS($D2)>=5000). Set both limits per report, from what the audience can act on.
With limits of 5% and $5,000: a $40,000 line that came in at $46,000 is $6,000 and 15% over, so it is flagged. A $300,000 line at $308,000 is $8,000 over but only 2.7%, so it is not. A $3,000 line at $4,000 is 33% over but only $1,000, so it is not.
One percentage for every line, so small lines fill the page with color. Limits never revisited as the business grows. The full guide is conditional formatting in Excel.