ECONOMICS

Detailed explanation-1: -A favorable variance occurs when the cost to produce something is less than the budgeted cost. It means a business is making more profit than originally anticipated. Favorable variances could be the result of increased efficiencies in manufacturing, cheaper material costs, or increased sales.

Detailed explanation-2: -A favorable cost variance occurs when the actual cost is less than the standard cost (at actual volumes). An unfavorable cost variance occurs when the actual cost exceeds the standard cost. The total direct materials variance is separated into a price and quantity variance.

Detailed explanation-3: -If actual costs are greater than standard costs the variance is unfavorable. An unfavorable variance tells management that if everything else stays constant the company’s actual profit will be less than planned.