Is a favorable variance always an indicator of efficiency in operation?

Is a favorable variance always an indicator of efficiency in operation?

Is a favorable variance always an indicator of efficiency in operation?

In a standard costing system, some favorable variances are not indicators of efficiency in operations. ... On the other hand, the materials usage variance, the labor efficiency variance, and the variable manufacturing efficiency variance are indicators of operating efficiency.

What does favorable variance represent?

A favorable variance indicates that a business has either generated more revenue than expected or incurred fewer expenses than expected. ... When revenue is involved, a favorable variance is when the actual revenue recognized is greater than the standard or budgeted amount.

Is favorable positive?

The word favorable describes something positive or promising, such as a two-thumbs-up movie review or the perfect conditions for golf. When things are going well, or in your favor, they're favorable. Favorable is an adjective that describes approval or good conditions for something.

Why are favorable variances not necessarily good and unfavorable variances are not necessarily bad?

An unfavorable variance decreases operating profits, holding all other things constant. Thus, when discussing revenue, income, or con- tribution margin, a favorable variance means the actual result is greater than the budgeted result.

Why is a favorable variance not always good?

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.

Which variance is always an adverse variance?

Explanation. Idle time variance illustrates the adverse impact on the profitability of an organization as a result of having paid for the labor time which did not result in any production. Idle time variance is therefore always described as an 'adverse' variance.

What is an example of a favorable variance?

Favorable Expense Variance For example, if supplies expense was budgeted to be $30,000 but the actual supplies expense ends up being $28,000, the $2,000 variance is favorable because having fewer expenses than were budgeted was good for the company's profits.

What is favorable condition?

adjective. Favourable conditions make something more likely to succeed or seem more attractive.

What does positive or favorable viewpoint mean?

favorable, auspicious, propitious mean pointing toward a happy outcome. favorable implies that the persons involved are approving or helpful or that the circumstances are advantageous.

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.

What is the definition of unfavorable variance in finance?

BREAKING DOWN 'Unfavorable Variance'. In finance, unfavorable variance refers to a difference between an actual experience and a budgeted experience in any financial category where the actual outcome is less favorable than the projected outcome.

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.

Which is the best definition of yield variance?

Yield variance is the difference between actual output and standard output of a production or manufacturing process, based on standard inputs of materials and labor. Yield variance is generally unfavorable, where the actual output is less than the standard or expected output.

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