Unfavorable Variance

What is 'Unfavorable Variance'

Unfavorable variance is an accounting term that describes instances where actual costs are greater than the standard or expected costs. An unfavorable variance can alert management that the company's profit will be less than expected. The sooner an unfavorable variance is detected, the sooner attention can be directed towards fixing any problems.

In manufacturing, the standard cost of a finished product is calculated by adding the standard costs of the direct material, direct labor and direct overhead. An unfavorable variance is the opposite of a favorable variance where actual costs are less than standard costs.
 

BREAKING DOWN 'Unfavorable Variance'

In finance, unfavorable variance refers to a difference between an actual experience and a budgeted experience in any financial category where the actual outcome is less favorable than the projected outcome. For example, if sales were budgeted to be $200,000 for a period but were actually $180,000, there would be an unfavorable (or negative) variance of $20,000, or 10%. Similarly, if expenses were projected to be $200,000 for a period but were actually $250,000, there would be an unfavorable variance of $50,000, or 25%.

RELATED TERMS
  1. Budget Variance

    A periodic measure used by governments, corporations or individuals ...
  2. Yield Variance

    The difference between actual output and standard output of a ...
  3. Mean-Variance Analysis

    The process of weighing risk against expected return. Mean variance ...
  4. Variance

    The spread between numbers in a data set, measuring Variance ...
  5. Variable Overhead Efficiency Variance

    The difference between actual variable overhead based on the ...
  6. Sales Price Variance

    The difference between the amount of money a business expects ...
Related Articles
  1. Markets

    Explaining Variance

    Variance is a measurement of the spread between numbers in a data set.
  2. Managing Wealth

    Calculating Portfolio Variance

    Portfolio variance is a measure of a portfolio’s volatility, and is a function of two variables.
  3. Personal Finance

    How Budgeting Works For Companies

    Learn how to break down and understand a corporate budget.
  4. Investing

    Exploring The Exponentially Weighted Moving Average

    Learn how to calculate a metric that improves on simple variance.
  5. Trading

    Computing Historical Volatility in Excel

    We examine how annualized historical volatility is computed from daily log returns, variance and standard deviation.
  6. Markets

    What Does Short Run Mean?

    Short run is the concept that for a business, at least one factor of production is fixed while others are variable.
  7. Investing

    Find The Highest Returns With The Sharpe Ratio

    Learn how to follow the efficient frontier to increase your chances of successful investing.
  8. Trading

    Trading With Gaussian Models Of Statistics

    The entire study of statistics originated from Gauss and allowed us to understand markets, prices and probabilities, among other applications.
  9. Investing

    What is Descriptive Statistics?

    Descriptive statistics is the term applied to meaningful data analysis.
  10. Investing

    Explaining the Cash Budget

    A cash budget is a plan for the inflows and outflows of cash for a business or an individual.
RELATED FAQS
  1. What does an unfavorable variance indicate to management?

    Learn what an unfavorable variance indicates to management, such as problems with meeting expense and revenue targets or ... Read Answer >>
  2. How is an unfavorable variance discovered?

    Learn how unfavorable variance is discovered through defining budget numbers, such as standard rates for labor and materials, ... Read Answer >>
  3. What is price variance in cost accounting?

    Understand what price variance is in relation to cost accounting. Learn the most common way price variance arises and how ... Read Answer >>
  4. Is variance good or bad for stock investors?

    Learn how high variance stocks are good for some investors and how diversified portfolios can reduce variance without compromising ... Read Answer >>
  5. What is the difference between standard deviation and variance?

    Understand the difference between standard deviation and variance; learn how each is calculated and how these concepts are ... Read Answer >>
  6. How much variance should an investor have in an indexed fund?

    Learn more about the significance of variance in index funds, its value as a measure of volatility and other common analytical ... Read Answer >>
Hot Definitions
  1. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  2. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  3. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  4. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  5. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  6. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
Trading Center