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Variances are either favorable or unfavorable. A favorable variance occurs when net income is higher than originally expected or budgeted. For example, when actual expenses are lower than projected expenses, the variance is favorable. Likewise, if actual revenues are higher than expected, the variance is favorable.

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Unfavorable variance is an accounting term that describes instances where actual costs are greater than the standard or expected costs. An unfavorable variance can alert management that the ...

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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.

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Favorable and unfavorable variances can be confusing. As a manager at a local movie theatre, you notice the expense for popcorn was way higher than budgeted, causing an unfavorable variance in that expense line. But, you also see a much higher revenue line for popcorn! So, the revenue variance is favorable.

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Revenues might have went up because a few large unexpected sales came in. All of these things help produce a favorable variance in the budgeted forecast and the actual business performance. Unfavorable variances are just the opposite. An unfavorable variance is when a company forecasts for a certain amount of income and does reach it.

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The reporting of favorable (and unfavorable) variances is a key component of a command and control system, where the budget is the standard upon which performance is judged, and variances from that budget are either rewarded or penalized.

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One of the benefits of flexible budgeting is that it helps you to understand the reasons for your company’s variances, the differences between actual and budgeted amounts. Always indicate whether a variance is favorable or unfavorable. A variance is usually considered favorable if it improves net income and unfavorable if it decreases income.

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What is the meaning of a favorable budget variance? A favorable budget variance indicates that an actual result is better for the company (or other organization) than the amount that was budgeted.. Here are three examples of favorable budget variances: Actual revenues are more than the budgeted or planned revenues.; Actual expenses are less than the budget or plan.

www.accountingcoach.com/terms/F/favorable-variance

favorable variance definition. A difference between an actual cost and a budgeted or standard cost, and the actual cost is the lesser amount. In the case of revenues, a favorable variance occurs when the actual revenues are greater than the budgeted or standard revenues.

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An unfavorable variance is encountered when an organization is comparing its actual results to a budget or standard. The variance can apply to either revenues or expenses, and is defined as:. Unfavorable revenue variance.When the amount of actual revenue is less than the standard or budgeted amount.