What does a favorable variance indicate?

A favourable variance is where actual income is more than budget, or actual expenditure is less than budget. This is the same as a surplus where expenditure is less than the available income.

What is a Favourable variance example?

Favorable variance is a difference between planned and actual financial results that is in favor of the business. For example, if a business expected to pay around $100,000 for equipment maintenance, but was able to contract a price of $75,000, they’ll have a favorable variance of $25,000.

Does favorable variance always indicate a good outcome?

Obtaining a favorable variance (or, for that matter, an unfavorable variance) does not necessarily mean much, since it is based upon a budgeted or standard amount that may not be an indicator of good performance.

What do variances indicate?

Variance tells you the degree of spread in your data set. The more spread the data, the larger the variance is in relation to the mean.

What’s the difference between favorable variance and unfavorable variance?

When revenue is higher than the budget or the actual expenses are less than the budget, this is considered a favorable variance. Unfavorable variances refer to instances when costs are higher than your budget estimated they would be.

What does a favorable direct materials price variance indicate?

A favorable DM price variance occurs when the actual price paid for raw materials is less than the estimated standard price. It could mean that the firm’s purchasing department was able to negotiate or find materials with lower cost.

Why did you decide the variance is favorable or unfavorable?

Favorable variances are defined as either generating more revenue than expected or incurring fewer costs than expected. Unfavorable variances are the opposite. Less revenue is generated or more costs incurred. Either may be good or bad, as these variances are based on a budgeted amount.

What does Favourable and adverse mean?

Positive/favourable (better than expected) or. Adverse/unfavourable ( worse than expected)

What is meant by favorable or unfavorable variance?

A favorable budget variance refers to positive variances or gains; an unfavorable budget variance describes negative variance, indicating losses or shortfalls.

Which variances are Favourable and Unfavourable results for the business?

What does direct material variance indicate?

The direct material variance is the difference between the standard cost of materials resulting from production activities and the actual costs incurred.

What would be a possible reason why a direct labor efficiency variance would be a favorable variance for a period?

What would be a possible reason why a direct labor efficiency variance would be a favorable variance for a period? FMOH costs do not change per unit, but do chance in total. T/F? The fixed overhead volume variance explains why the fixed overhead is underallocated or overallocated.

What does an Unfavourable variance mean?

Unfavorable variance is an accounting term that describes instances where actual costs are higher than the standard or projected costs. An unfavorable variance can alert management that the company’s profit will be less than expected.

What does it mean when variance is unfavorable?

Unfavorable variance is an accounting term that describes instances where actual costs are greater than the standard or projected costs. An unfavorable variance can alert management that the company’s profit will be less than expected.

How do you tell if a variance is favorable or unfavorable?

If revenues were higher than expected, or expenses were lower, the variance is favorable. If revenues were lower than budgeted or expenses were higher, the variance is unfavorable.

When would a variance be labeled as favorable?

is the difference between what the total revenue should have been, given the actual level of activity for the period, and the actual total revenue. If actual revenue exceeds what the revenue should have been, the variance is labeled favorable. If actual revenue is less than what the revenue should have been, the variance is labeled unfavorable.

Is a favorable variance always good?

Obtaining a favorable variance (or, for that matter, an unfavorable variance) does not necessarily mean much, since it is based upon a budgeted or standard amount that may not be an indicator of good performance. In particular, favorable variances related to price (such as the labor rate variance and purchase price variance) are only derived

What is an unfavorable variance and how to avoid it?

These thin margins are the reason auto suppliers examine direct materials variances so carefully.

How do you calculate favorable and unfavorable variances?

Understanding Unfavorable Variance. A budget is a forecast of revenue and expenses,including fixed costs as well as variable costs.