All 38 Variance Analysis questions
More in Variance Analysis
What is variance analysis? What is a standard cost? What is a standard hour and how is it used in efficiency measurement? What is the total cost variance and how does it relate to the sub-variances? What is a standard costing system? What does an adverse sales price variance indicate? What is a favorable variance a warning sign of sometimes? What is the difference between a budget and a standard? What are the two components of the direct materials variance? What are the two components of the direct labor variance?
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Budgeting & Forecasting › Variance Analysis

What is the difference between a favorable and an adverse variance?

Beginner

Answer

A favorable (F) variance improves profit relative to budget—actual revenue higher, or actual cost lower, than expected. An adverse (A, or unfavorable) variance worsens profit—actual revenue lower, or cost higher, than expected. The labels depend on the effect on profit, not simply whether actual is above or below budget.
Real-world example Spending less than budget on materials is a favorable variance; paying a higher wage rate is adverse.

Common follow-ups: How is the label determined? | Does 'higher than budget' always mean adverse?

Flexible Budgets The Budgeting Process Variance Analysis
All 38 Variance Analysis questions