Unfavorable Variance


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.

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%.

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  1. What does an unfavorable variance indicate to management?

    In managerial accounting, an unfavorable variance is discovered when a company's management performs a comparison between ... Read Full Answer >>
  2. How is an unfavorable variance discovered?

    An unfavorable variance is discovered when actual numbers and budget numbers are compared. Unfavorable variance can be computed ... Read Full Answer >>
  3. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  4. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
  5. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>
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