Multiple Choice
Which of the following lists the correct three steps for correcting an amount posted to an incorrect column in the accounting records?
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3. Accrual Accounting Concepts
Adjusting Entries: Accrued Expenses
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If the actual cost is greater than what the cost should have been, the variance is labeled as:
A
Favorable
B
Neutral
C
Unfavorable
D
Zero
Verified step by step guidance1
Understand the concept of variance: Variance in financial accounting refers to the difference between the actual cost incurred and the standard or expected cost. It helps in analyzing performance and identifying areas of improvement.
Identify the types of variances: Variances can be classified as favorable, unfavorable, or neutral based on whether the actual cost is higher, lower, or equal to the expected cost.
Analyze the scenario: If the actual cost is greater than the expected cost, it indicates that more resources were used or expenses were higher than planned, which is considered unfavorable.
Relate the term 'unfavorable' to the problem: An unfavorable variance signals inefficiency or overspending, which requires corrective action to align costs with expectations.
Conclude the classification: Based on the given options, the correct label for a situation where the actual cost exceeds the expected cost is 'Unfavorable.'
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