# Unfavorable Variance

## Unfavorable Variance

The actual costs of a project over and above the normal costs of a similar project. Companies try to avoid unfavorable variances by budgeting carefully.
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Future studies could also address favorable versus unfavorable variance. The lower the unfavorable variance, the higher the profit.
employees' annuities and "an unfavorable variance related to property tax adjustments" of \$13 million.
Actual rate/cost \$5.95/pound for 580 pounds Actual quantity 0.58 pound per burger (i.e., 580 divided by 1,000) Standard rate/cost \$6.00/pound for 500 pounds Standard quantity 0.50 pound per burger Total Variance Actual (AR X AQ) or \$5.95 X 580 = \$3,451 Standard (SR X SQ) or \$6.00 X 500 = \$3,000 Unfavorable variance (\$451) Rate Component AQ (SR - AR) or 580 (\$6.00-\$5.95) \$29 Favorable Quantity Component SR (SQ - AQ) or \$6.00 (500-580) (\$480) Unfavorable Total variance (\$451) In a restaurant setting, the expected or budgeted amount in the variance analysis model is a flexible value that depends on the actual activity level rather than a static projection of costs based on expected activity.
However, if actual cost exceeds expected cost, then we have an unfavorable variance. If actual cost is lower than expected cost, then there is a favorable variance.
Budgeting for an increase in sales volume of some negotiated percentage and then analyzing the unfavorable variance after falling short of the budget will not provide the same information.
Since the salesmen were remunerated at the rate of 5 percent for each dollar of sales, the selling price decrease for bourbon generated a favorable commission variance for bourbon and unfavorable variance for vodka, which experienced a price increase.
Meier said he expected a strong first half of 2004, with 3 to 5 percent sales growth, but warned of a decrease in earnings per diluted share because of an unfavorable variance in equity earnings and a higher pension expense.
Total operating costs exhibit an unfavorable variance of \$5,000 for Department 2 and a favorable variance of \$2,000 for Department 1.
For example, an unfavorable variance from the \$3 per hundredweight standard used in Step 6 could be traceable to the transportation activity.
This translates to an unfavorable variance of \$35,632; the firm should have had to invest that much more than was budgeted for receivables because of the difference between budgeted and actual sales proportions.
In this case 2,700 pounds were purchased at a price that was \$.10 above the standard, resulting in a \$270 unfavorable variance.
That's because disruptions cause inefficiency in the manufacturing cycle, create unfavorable variance in production time, reduce capacity utilization, impact on-time production, and lead to defects and increased rework rate.
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