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What does a favorable variance indicate?
What does a favorable variance indicate?
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Practice Questions
1 question
Q1
What does a favorable variance indicate?
Costs are higher than budgeted
Sales are lower than budgeted
Costs are lower than budgeted or sales are higher than budgeted
No impact on financial performance
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A favorable variance indicates that actual costs are lower than budgeted or actual sales are higher than budgeted.
Questions & Step-by-step Solutions
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Q
Q: What does a favorable variance indicate?
Solution:
A favorable variance indicates that actual costs are lower than budgeted or actual sales are higher than budgeted.
Steps: 6
Show Steps
Step 1: Understand what a variance is. A variance is the difference between what was planned (budgeted) and what actually happened.
Step 2: Identify the two types of variances: cost variance (how much you spent) and sales variance (how much you earned).
Step 3: Know that a favorable variance means you did better than expected.
Step 4: For costs, a favorable variance means you spent less money than you planned.
Step 5: For sales, a favorable variance means you made more money than you planned.
Step 6: Conclude that a favorable variance is a good sign for a business.
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