Which statement defines a favourable variance?

Which statement defines a favourable variance?

• A. Results are worse than expected.
• B. Results are better than expected.
• C. A variance equal to zero.
• D. A variance caused by clerical errors.

Answer: (B)

A favourable variance occurs when actual results beat what was planned or budgeted, providing a beneficial difference for the business. This means outcomes are better than expected, such as actual costs being lower than budget or actual revenues exceeding budget. The idea is that the variance supports a positive performance assessment. Conversely, worse results would be unfavourable, a zero variance is neutral, and a variance arising from clerical errors wouldn’t reflect genuine performance. So, saying results are better than expected best captures the notion of a favourable variance.

A favourable variance occurs when actual results beat what was planned or budgeted, providing a beneficial difference for the business. This means outcomes are better than expected, such as actual costs being lower than budget or actual revenues exceeding budget. The idea is that the variance supports a positive performance assessment. Conversely, worse results would be unfavourable, a zero variance is neutral, and a variance arising from clerical errors wouldn’t reflect genuine performance. So, saying results are better than expected best captures the notion of a favourable variance.