gnment Gauging the Favorableness of Variances When variances occur, they are described as being either favorable or unfavorable. When actual activity consumes more time or money than initially planned, an unfavorable variance exists. However, when actual activity consumes less time or money than initially planned, a favorable variance exists. Note that the terms favorable and unfavorable are used, rather than saying that a variance is good or bad, because until the cause of a variance is discovered, it is not clear whether a variance is either good or bad. Note: Use the minus sign to indicate negative values (when the budgeted amount is greater than the actual). If a company calculates that the actual cost for the actual hours worked by employees was $4,300,000, and the amount budgeted for those hours actually worked was $4,300,000, the actual cost for hours worked less the budgeted cost for hours worked is $ . This tells you that the actual cost at actual hours worked is equal to * v the budgeted cost at actual hours worked. What type of variance is this? No variance If a company calculates that the budgeted cost for actual hours worked is $150,000, and the budgeted cost at the budgeted amount of hours to have been worked is $100,000, the budgeted cost at actual time worked less the budgeted cost at budgeted hours to have been worked is $ . This tells you that the actual hours worked at budgeted cost is greater than - v budgeted hours worked at budgeted cost. What type of variance is this? Unfavorable direct labor time variance Feedback Check My Work Subtract the budgeted amount from the actual amount to get the sign correct. Note that if an amount spent or hours used for labor goes down, then profits for the company go up, so a negative direct labor cost variance is favorable. Likewise, an increase in the amount spent or hours used would decrease profits, so this would be an unfavorable variance Standard Direct Labor Cost The controller at your shoemaking company