Q:

What are favorable and unfavorable variances?

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Quick Answer

A favorable variance is a state in which the revenue of something goes beyond its budget. When a variance is unfavorable, the revenue made is less than the budget.

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Full Answer

Favorable variances and unfavorable variances are usually expressed as negative and positive respectively. The first thing to look into is how any sudden changes have an effect. Changing the price of a product, the location of a store or a change in consumers has a significant effect on variance.

Another thing that affects unfavorable and favorable variance is management. A situation in which the prices of a product change during a specific holiday or promoting a special product or deal to raise consumer awareness are all decisions based on the management. Proper management sometimes leads to favorable variance.

Budgeting also has an effect on variance. Poorly executed budgeting, whether it is using too much money to make the product or spending too little money to make a product that is of good quality, reduces the chances of it succeeding.

Favorable variance is not always considered to be beneficial to a company. Reducing costs to put out a product of inferior quality is likely to hurts the business in the long run.

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