Financial Performance variances add or subtract
jodyewhite
Registered Posts: 35
Hi
I'm a little confused with adverse and favourable variances, how I understood was adverse you add and favourable you subtract.
From answering the online exams both variances have been subtracted when one is favourable and adverse.
Exam 1 question 2a the variance is £1665 adverse this has been subtracted.
Exam 2 question 2a the variance is £14850 favourable this has been subtracted too.
Many Thanks
JO
I'm a little confused with adverse and favourable variances, how I understood was adverse you add and favourable you subtract.
From answering the online exams both variances have been subtracted when one is favourable and adverse.
Exam 1 question 2a the variance is £1665 adverse this has been subtracted.
Exam 2 question 2a the variance is £14850 favourable this has been subtracted too.
Many Thanks
JO
0
Comments

True, but...a variance can be the same sign but be adverse or favourable depending on whether it's income or expense.
Income is £250 higher than expected = favourable
Cost of sales is £250 higher than expected = adverse
Maybe that's what was going on there?Accounts Executive, ғɪᴀʙ ᴍᴀᴀᴛ
QBO & Xero certified advisor
AAT
Level 2 Certificate in Accounting  17 Jun 2015
Level 3 Diploma in Accounting  22 Jan 2016
Level 4 Diploma in Accounting  19 Dec 2017
MAAT  27 Mar 2018
ACCA
Advanced Diploma in Accounting and Business...
F4 Corporate and Business Law  4 Jun 2019
F5 Performance Management  15 July 2019
F6 Taxation (United Kingdom)  3 Dec 2019
F8 Audit and Assurance  2 Mar 20200 
Hi @jodyewhite
When you say subtracted do you mean the variance is negative?
I avoid using negative or positive signs for variances because it can be confusing, as @KoopaCooper explained an adverse or favourable variance can be either positive or negative depending on the variance you are looking at. It's more useful to understand what the variance means.
Exam 1 2a is material price variance £1665 adverse. This means the actual price is more than standard price at actual quantity. Working with negative/positive signs, I make that a positive £1665 for adverse
The equation is AQ.AP  AQ.SP = + ve £1665 (where AQ.AP = £10,915 and AQ.SP = £9250
Exam 2 2b is labour rate variance £14,850 favourable. This means the actual rate is less than the standard rate at actual hours. I make this negative £14,850 for favourable variance.
The equation is AH.AR  AH.SR = ve £14,850 (where AH.AR = £157,410 and AH.SR= £172,260)
Did you get the answers correct?
0 
Thank you that has helped understand the method better.
JO0
Categories
 All Categories
 1.2K Books to buy and sell
 2.3K General discussion
 12.5K For AAT students
 319 NEW! Qualifications 2022
 157 General Qualifications 2022 discussion
 11 AAT Level 2 Certificate in Accounting
 56 AAT Level 3 Diploma in Accounting
 92 AAT Level 4 Diploma in Professional Accounting
 8.8K For accounting professionals
 23 coronavirus (Covid19)
 272 VAT
 92 Software
 274 Tax
 136 Bookkeeping
 7.2K General accounting discussion
 201 AAT member discussion
 3.8K For everyone
 38 AAT news and announcements
 345 Feedback for AAT
 2.8K Chat and offtopic discussion
 582 Job postings
 16 Who can benefit from AAT?
 36 Where can AAT take me?
 42 Getting started with AAT
 26 Finding an AAT training provider
 48 Distance learning and other ways to study AAT
 25 Apprenticeships
 66 AAT membership