Course Outline
Join PRO

What is a favorable variance?

Author:
Harold Averkamp, CPA, MBA

Definition of a Variance

In accounting the term variance usually refers to the difference between an actual amount and a planned or budgeted amount. For example, if a company’s budget for supplies expense is $30,000 and the actual amount is $28,000 or $34,000, there will be a variance of $2,000 or $4,000 respectively. Similarly, if a company has budgeted its revenues to be $200,000 and its actual revenues end up being $193,000 or $208,000, there will be a variance of $7,000 or $8,000 respectively.

When is a Variance Favorable

A favorable variance indicates that the variance or difference between the budgeted and actual amounts was good or favorable for the company’s profits. In other words, this variance will be one reason why the amount of the company’s actual profits will be better than the budgeted profits.

Favorable Expense Variance

For example, if supplies expense was budgeted to be $30,000 but the actual supplies expense ends up being $28,000, the $2,000 variance is favorable because having fewer expenses than were budgeted was good for the company’s profits. It is one reason why the company’s actual profits will be better than the budgeted profits.

Favorable Revenue Variance

If a company had budgeted its revenues to be $200,000 and the actual revenues end up being $208,000, the company will have a favorable variance of $8,000. The variance is favorable because having the actual revenues being more than the amount budgeted is good for the company’s profits. It will also be a factor why the company’s actual profits will be better than the budgeted profits.

Join PRO to Track Progress

Features

Free

PRO

Lifetime Access (One-Time Fee)
Explanations
Quizzes
Q&A
Dictionary
Bookkeeping Video Training
Financial Statements Video Training
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
Flashcards
Crossword Puzzles
Word Scrambles with Coaching
Bookkeeping Study Guide
Managerial and Cost Accounting Study Guide
Certificates of Achievement
Bookkeeping Certificate of Excellence
Business Forms
Printable PDF Files
Progress Tracking
Motivational Badges and Points
Motivational Medal Rankings
Motivational Activity Streaks
Public Profile Page of Achievements

About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

Read 3,033 Testimonials

PRO for Teams
  • Easily onboard new users and team admins
  • Monitor individual user progress and grades
  • Monitor team progress and compare users
  • View average grades and find problem areas
  • Monitor recent activity and user achievements
PRO for Teams
Take the Tour Join Pro Upgrade to Pro