What does a favourable variance indicate?

A favourable variance indicates that an organization has either generated higher revenues than originally budgeted or incurred lower costs than anticipated. This positive difference between expected and actual performance is a sign that the company is performing well financially.

When revenues exceed budgeted amounts, it means the business is earning more from sales than it had planned, which can result from increased sales volume, better pricing strategies, or successful marketing initiatives. On the other hand, lower costs signify that the company has managed its expenses better than projected, potentially due to improved efficiency, cost-cutting measures, or favorable market conditions.

Thus, understanding a favourable variance in the context of both revenues and costs helps businesses assess their financial health and make informed decisions about future strategies, resource allocation, and potential areas for improvement or growth.