When compared to the budgeted amount, if the actual cost or revenue contributes to a higher income, the variance is considered

When compared to the budgeted amount, if the actual cost or revenue contributes to a higher income, the variance is considered

• A. Advantageous
• B. Detrimental
• C. Favorable
• D. Neutral

Answer: (C)

In budgeting, whether a variance is labeled favorable or unfavorable depends on its effect on profit. If actual results lead to a higher income than planned, the variance is favorable. This can happen because actual revenue is higher than budgeted revenue, or actual costs are lower than budgeted costs, both boosting net income. For example, revenue higher than budgeted increases profit, while costs lower than budgeted reduce expenses and also raise profit. Since the situation described—actual results contributing to higher income—improves profitability, the correct description is favorable. Terms like advantageous aren’t standard in this context, and neutral would mean no difference, which isn’t the case here.

In budgeting, whether a variance is labeled favorable or unfavorable depends on its effect on profit. If actual results lead to a higher income than planned, the variance is favorable. This can happen because actual revenue is higher than budgeted revenue, or actual costs are lower than budgeted costs, both boosting net income. For example, revenue higher than budgeted increases profit, while costs lower than budgeted reduce expenses and also raise profit. Since the situation described—actual results contributing to higher income—improves profitability, the correct description is favorable. Terms like advantageous aren’t standard in this context, and neutral would mean no difference, which isn’t the case here.