Main TopicsIs a favorable variance always a bad thing?
Table of Contents
- Is a favorable variance always a bad thing?
- Why would a variance be unfavorable?
- Is a favorable variance good?
- What results in a favorable variance?
- Why should favorable variances be investigated?
- Does favorable variance always indicate a good outcome?
- Should all variances be investigated?
- What strategies need to be employed to deal with favorable and unfavorable variance?
- What does it mean if a variance is favorable?
- What does it mean when a variance is favorable?
- Is there such thing as a favorable variance?
- When does an unfavorable quantity variance occur?
- Why do companies need to know about variances?
- When to use a favorable budget variance for revenues?
Is a favorable variance always a bad thing?
We express variances in terms of FAVORABLE or UNFAVORABLE and negative is not always bad or unfavorable and positive is not always good or favorable. ... A FAVORABLE variance occurs when actual direct labor is less than the standard.
Why would a variance be unfavorable?
An unfavorable variance is the opposite of a favorable variance where actual costs are less than standard costs. Rising costs for direct materials or inefficient operations within the production facility could be the cause of an unfavorable variance in manufacturing.
Is a favorable variance good?
When is a Variance Favorable A favorable variance indicates that the variance or difference between the budgeted and actual amounts was good or favorable for the company's profits. In other words, this variance will be one reason why the amount of the company's actual profits will be better than the budgeted profits.
What results in a favorable variance?
A favorable variance occurs when the cost to produce something is less than the budgeted cost. It means a business is making more profit than originally anticipated. Favorable variances could be the result of increased efficiencies in manufacturing, cheaper material costs, or increased sales.
Why should favorable variances be investigated?
Should only unfavorable variances be investigated? _____, favorable variances should be investigated to make sure they are not hurting the business in the long run.
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.
Should all variances be investigated?
Variances should be investigated when variances are significant between actual costs and standard costs. ... Significant variances must be reported as actual costs rather than standard costs, variances can be corrected with continual review and alterations when needed of standard costs.
What strategies need to be employed to deal with favorable and unfavorable variance?
Many managers use a system called management by exception. They investigate the largest variances, whether favorable or unfavorable, and ignore the rest. This strategy helps focus managers on potential problem areas in operations.
What does it mean if a variance is favorable?
A variance should be indicated appropriately as "favorable" or "unfavorable." A favorable variance is one where revenue comes in higher than budgeted, or when expenses are lower than predicted. The result could be greater income than originally forecast.
What does it mean when a variance is favorable?
A variance should be indicated appropriately as "favorable" or "unfavorable." A favorable variance is one where revenue comes in higher than budgeted, or when expenses are lower than predicted. The result could be greater income than originally forecast.
Is there such thing as a favorable variance?
Favorable variance. 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.
When does an unfavorable quantity variance occur?
An unfavorable materials quantity variance occurred because the pounds of materials used were greater than the pounds expected to be used. This could occur if there were inefficiencies in production or the quality of the materials was such that more needed to be used to meet safety or other standards.
Why do companies need to know about variances?
Requiring managers to explain favorable variances allows them to assess whether the favorable variance is sustainable. Knowing what caused the favorable variance allows management to plan for it in the future, depending on whether it was a one-time variance or it will be ongoing.
When to use a favorable budget variance for revenues?
Occasionally, a favorable budget variance for revenues will be analyzed to determine whether it was the result of higher than planned selling prices, greater quantities, or a more favorable mix of items sold. Similarly, a favorable budget variance for expenses will be analyzed to identify the cause of the lower expenses.
