Which condition describes when a favourable variance occurs?

Which condition describes when a favourable variance occurs?

• A. When the actual cost is less than budgeted cost or when actual revenue exceeds budgeted revenue
• B. When the actual cost exceeds budget
• C. When revenue is below budget
• D. When there is no variance

Answer: (A)

Favourable variance occurs when actual results are better than planned: costs come in below the budget or revenue comes in above the budget. In variance analysis, you compare what actually happened with what you planned. Lower actual costs reduce expenses against the budget, and higher actual revenue increases income against the budget, both boosting profit. For example, budgeted costs of 100 but actual costs of 90 are favourable; budgeted revenue of 200 but actual revenue of 210 is also favourable. The opposite—actual costs exceeding the budget or revenue falling short—produces an unfavourable variance. If actual results match the budget, there is no variance.

Favourable variance occurs when actual results are better than planned: costs come in below the budget or revenue comes in above the budget. In variance analysis, you compare what actually happened with what you planned. Lower actual costs reduce expenses against the budget, and higher actual revenue increases income against the budget, both boosting profit. For example, budgeted costs of 100 but actual costs of 90 are favourable; budgeted revenue of 200 but actual revenue of 210 is also favourable. The opposite—actual costs exceeding the budget or revenue falling short—produces an unfavourable variance. If actual results match the budget, there is no variance.