When compared to the budgeted amount, if the actual cost or revenue contributes to a lower income, then the variance is considered
Question
When compared to the budgeted amount, if the actual cost or revenue contributes to a lower income, then the variance is considered
Solution
The variance is considered unfavorable. When actual costs are higher than budgeted costs, or actual revenues are lower than budgeted revenues, it results in a lower income than planned. This is unfavorable because it means the company is not meeting its financial goals. This could be due to a variety of factors, such as higher than expected costs, lower than expected sales, or a combination of both. It's important for the company to analyze the reasons for the unfavorable variance and take corrective action if necessary.
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