Business – 5.5 Budgets – Variances | e-Consult
5.5 Budgets – Variances (1 questions)
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An adverse variance occurs when the actual result is less desirable than the budgeted or standard amount, indicating a shortfall or loss. It is termed “adverse” because it works against the organisation’s objectives.
A favourable variance arises when the actual result is more desirable than the budgeted or standard amount, indicating a surplus or gain. It is called “favourable” because it works in the organisation’s favour, improving performance.