An unfavorable variance is a variance that
A)Increases cash relative to the budgeted amount.
B)Decreases cash relative to the budgeted amount.
C)Increases operating income relative to the budgeted amount.
D)Decreases operating income relative to the budgeted amount.

Question

Quizplus · Accepted Answer

An unfavorable variance is a variance that decreases operating income relative to the budgeted amount. This means that actual costs or expenses were higher than what was budgeted, resulting in a negative impact on profitability. Option A is incorrect because an increase in cash may or may not be favorable, depending on the circumstances. Option B correctly states that an unfavorable variance decreases cash. However, it is incomplete as it does not specify the impact on operating income. Option C is incorrect as an increase in operating income would be a favorable variance.

An Unfavorable Variance Is a Variance That