A variance is favourable when:
AStandard exceeds budget
BActual exceeds standard
CBoth are equal
DActual cost is less than standard cost
Answer & Solution
Correct answer: D. Actual cost is less than standard cost
1. By convention, a favourable variance signals better-than-expected performance on a cost line.
2. This means actual cost came in below standard cost.
3. The opposite condition (actual > standard) is unfavourable.
4. Hence a variance is favourable when actual is less than standard.
_Source: ICAI BoS Inter Paper 3, Ch 13 "Standard Costing", §13.5 ¶3_
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