Question

In general, the terms favorable and unfavorable are used to describe the effect of a variance on

Select one:

a. income/profit

b. sales revenue

c. production costs

d. operating expenses

e. balance sheet

Answer 1

Option (c) is correct

The terms favorable and unfavorable are used to describe the effect of a variance on production costs.

Budgets or standard costs are established and then actual cost is measured and compared with those standards. When actual costs are more than the standards, then it is unfavorable variance and when actual cost is less than the standard cost, then it is favorable variance. These costs are production costs like direct material, labor and overheads.