Distinguish between a favorable variance and an unfavorable variance.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Distinguish between a favorable variance and an unfavorable variance.
Favorable Variance: Favorable variance is the variation in the actual and planned output which is beneficial for the company like actual cost is less than the standard or planned cost or the actual revenue is more than the planned revenue.
Unfavorable Variance: Unfavorable variance is the variation in the actual and planned output which is harmful for the company like actual cost incurred is more than the standard or planned cost or the revenue is less than the planned revenue.
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