All 38 Variance Analysis questions
More in Variance Analysis
What is a standard hour and how is it used in efficiency measurement? What is the total cost variance and how does it relate to the sub-variances? What is a standard costing system? What does an adverse sales price variance indicate? What is the difference between a budget and a standard? What are the two components of the direct materials variance? What are the two components of the direct labor variance? How is the variable overhead variance analyzed? What are the sales variances (price and volume)? How do variances reconcile budgeted profit to actual profit (an operating statement)?
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Budgeting & Forecasting › Variance Analysis

What is a favorable variance a warning sign of sometimes?

Beginner

Answer

A favorable variance isn't always good: buying cheaper, lower-quality materials (favorable price) can cause waste and customer issues; underspending on maintenance or training flatters the budget but harms the long term; and favorable variances can signal standards set too loosely. Investigating significant favorable variances is as important as adverse ones.
Real-world example A favorable maintenance variance turns out to be deferred essential upkeep that later causes breakdowns.

Common follow-ups: Why investigate favorable variances too? | Give an example of a misleading favorable variance.

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All 38 Variance Analysis questions