# Financial Performance variances add or subtract

jodyewhite
AAT Student 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

226Income 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 ᴍᴀᴀᴛQBO & Xero certified advisor

AATLevel 2 Certificate in Accounting- 17 Jun 2015Level 3 Diploma in Accounting- 22 Jan 2016Level 4 Diploma in Accounting- 19 Dec 2017MAAT- 27 Mar 2018ACCAAdvanced Diploma in Accounting and Business...

F4Corporate and Business Law - 4 Jun 2019F5Performance Management - 15 July 2019F6Taxation (United Kingdom) - 3 Dec 2019F8Audit and Assurance - 2 Mar 2020191When 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?

35JO