ENTREPRENEURIAL PLANNING
FINANCIAL PLANNING AND ANALYSIS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The variance has a negative impact on profits and is therefore seen as bad
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The variance has a positive impact on profits and is therefore seen as good
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Either A or B
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None of the above
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Detailed explanation-1: -An adverse variance is where actual income is less than budget, or actual expenditure is more than budget. This is the same as a deficit where expenditure exceeds the available income. A favourable variance is where actual income is more than budget, or actual expenditure is less than budget.
Detailed explanation-2: -A negative variance is always adverse. Justification: A negative variance on revenue i.e. money coming into the business is adverse. However a negative variance on expenditure would be favourable. If actual revenue is higher than budget then there is a favourable variance.
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.