• 1 Marks

MI – May 2015 – L1 – SA – Q12 – Budgeting

Identify when a cost variance is said to be favourable.

In measuring budget performance, an item of cost is said to have favourable variance when
A. Actual costs of operation are higher than budgeted costs
B. Budgeted costs of operation are less than actual costs
C. Actual costs of operation are less than budgeted costs
D. Budgeted costs of operation are equal to actual costs
E. Budgeted costs of operation are not available

Answer:
C. Actual costs of operation are less than budgeted costs

Explanation:
A favourable variance occurs when actual costs are lower than the budgeted or planned costs, indicating cost savings or efficiency.

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