Month End Glossary

Unfavorable Variance

An unfavorable variance occurs when there is a difference between estimated and actual figures in financial statements that indicates a negative impact.

An unfavorable variance refers to a financial figure or outcome that diverges negatively from the projection or baseline expectation. For instance, if a company anticipates expenses of $50,000 for a specific project and ends up with actual expenses amounting to $60,000, the variance of $10,000 is categorized as unfavorable. This concept is used in financial analysis to identify inefficiencies and where costs or losses have exceeded planned amounts. For example, in a monthly budget review, managers might look at the unfavorable variance in utility expenses if the actual amount spent is higher than anticipated due to unforeseen rate increases. Identifying and understanding these variances is crucial because they highlight areas requiring attention or intervention. Related terms include Variance Analysis and Budgetary Control.

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