Definition of 'Unfavorable Variance'
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.
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