ECONOMICS (CBSE/UGC NET)

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: -Unfavorable variance is an accounting term that describes instances where actual costs are higher than the standard or projected costs. An unfavorable variance can alert management that the company’s profit will be less than expected.

Detailed explanation-3: -What does favorable and unfavorable mean in accounting? In the field of accounting, variance simply refers to the difference between budgeted and actual figures. Higher revenues and lower expenses are referred to as favorable variances. Lower revenues and higher expenses are referred to as unfavorable variances.

Detailed explanation-4: -A favorable sales price variance means a company received a higher-than-expected selling price, often due to fewer competitors, aggressive sales and marketing campaigns, or improved product differentiation.

Detailed explanation-5: -A favorable budget variance refers to positive variances or gains; an unfavorable budget variance describes negative variance, indicating losses or shortfalls. Budget variances occur because forecasters are unable to predict future costs and revenue with complete accuracy.