What is usually emphasized by a favourable variance?

A favourable variance typically indicates that actual performance is better than what was anticipated or planned. This is usually manifested as either higher revenues than expected or lower costs than anticipated. When a business experiences a favourable variance, it suggests that it is operating efficiently or generating more income, leading to overall improved profitability.

For instance, if a company had projected to earn $100,000 in revenue but instead earned $120,000, this surplus is a favourable variance indicating better-than-expected sales. Alternatively, if the anticipated costs were $50,000 but the actual costs came in at $40,000, this reduction demonstrates a favourable variance in expenses, contributing positively to the company's financial health.

In contrast, higher expenditures, lower production levels, and budget outages would all indicate challenges or inefficiencies rather than positive outcomes, making them inconsistent with what a favourable variance represents.