Variances
What is the difference between adverse variances and favorable variances?
Adverse variances refer to differences between actual results and budgeted figures that have a negative impact on profitability or efficiency. Favorable variances, on the other hand, indicate positive differences that contribute to improved profitability or efficiency.
How can businesses calculate and interpret different types of variances?
Businesses can calculate and interpret different types of variances by comparing actual results with the corresponding budgeted or standard figures. For example, they can calculate revenue variances by comparing actual sales revenue with budgeted sales revenue, expense variances by comparing actual expenses with budgeted expenses, and profit variances by comparing actual profit with budgeted profit. Variances can be analyzed in terms of their favorable or unfavorable nature, their causes, their impact on overall performance, and their implications for future planning and decision-making.