ECONOMICS

Detailed explanation-1: -A favorable variance is recorded in the accounting records as a credit. The difference between the standard cost of the product and its actual cost is called variance. The material quantity variance is the most useful variance in assessing the performance of the Purchasing Department.

Detailed explanation-2: -Unfavorable variances are recorded as debits and favorable variances are recorded as credits.

Detailed explanation-3: -A favourable variance is where actual income is more than budget, or actual expenditure is less than budget. This is the same as a surplus where expenditure is less than the available income.

Detailed explanation-4: -The variance is adverse and will therefore be a debit in the Statement of Profit or Loss, to be offset against the standard production cost which will have been transferred from the finished goods control account.

Detailed explanation-5: -The correct answer is b. Actual expenses are less than expected. A favorable variance occurs when: actual costs are lower than the expected costs because this would increase the company’s income.