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In variance analysis, what does a favorable variance indicate?
In variance analysis, what does a favorable variance indicate?
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In variance analysis, what does a favorable variance indicate?
Higher costs than budgeted
Lower costs than budgeted
Higher revenues than budgeted
Lower revenues than budgeted
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A favorable variance indicates that actual revenues are higher than budgeted or actual costs are lower than budgeted.
Questions & Step-by-step Solutions
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Q
Q: In variance analysis, what does a favorable variance indicate?
Solution:
A favorable variance indicates that actual revenues are higher than budgeted or actual costs are lower than budgeted.
Steps: 5
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Step 1: Understand what variance analysis is. It is a way to compare what was planned (budgeted) to what actually happened (actual results).
Step 2: Know the two main components of variance: revenues and costs.
Step 3: A favorable variance occurs when actual revenues are greater than what was expected (budgeted).
Step 4: A favorable variance can also happen when actual costs are less than what was planned (budgeted).
Step 5: In simple terms, a favorable variance means you made more money than expected or spent less money than expected.
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