Unfavorable Variance

An unfavorable variance, also called an adverse variance, signals that results were worse than planned. It is calculated by comparing actual figures with the budget or with standard costs.

For example, if a company budgeted labour costs of 120,000 for a month and actually spent 135,000, it has an unfavorable labour variance of 15,000.

The cause matters more than the number. An unfavorable cost variance might be due to inefficiency, but it could also result from higher sales, which naturally require more materials and labour. This is why companies often compare actual results with a flexible budget, adjusted to the actual level of activity, before drawing conclusions.

Managers usually focus on variances that are large or that keep recurring. Investigating them can reveal problems such as supplier price rises, machine breakdowns, poor-quality materials or unrealistic budgets. In British English, the spelling unfavourable is used.