Favourable and adverse variances
A variance is favourable if it helps profit and adverse if it hurts it. Label each one, then net them off.
Task 1Good for profit or bad for profit4 questions
- Favourable
- better for profit than the budget. Shown as F
- Adverse
- worse for profit than the budget. Shown as A
- Income above budget: favourable
- Income below budget: adverse
- A cost below budget: favourable
- A cost above budget: adverse
The same direction means opposite things for income and for costs. More sales revenue is good. More cost is bad.
Task 2Netting the variances3 questions