Question

In: Accounting

in what condition will a variance results an unfavorable variance ?

in what condition will a variance results an unfavorable variance ?

Solutions

Expert Solution

Condition that a varaince results an unfavorable variance

Actual Cost - Standard/expected Cost = Unfavorable variance

Where the actual cost is more than the expected cost then such variance is called unfavorable varaince

As in the same way

Standard/expected Revenues - Actual Revenue = Unfavorable variance

Where actual revenue is less than the expected revenues then such variance is called unfavorable variance.

Thus from the above the simple condition for which the variance results an unfavorable variance is that the actual costs exceed the standard costs or budgeted costs. Also, the amount by which actual revenues are less than the budgeted revenues.

For example:

  • Unfavorable revenue variance. When the amount of actual revenue is less than the standard or budgeted amount. Thus, actual revenues of $3,00,000 versus a budget of $4,00,000 equals an unfavorable revenue variance of $100,000.
  • Unfavorable expense variance. When the amount of actual expense is greater than the standard or budgeted amount. Thus, actual expenses of $3,50,000 versus a budget of $3,00,000 equals an unfavorable expense variance of $50,000.

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