Question

The spending variance is labeled as favorable when the blank______.

a) Actual cost is more than what the cost should have been at the actual level of activity
b) Actual cost is less than what the cost should have been at the planned level of activity
c) Actual cost is less than what the cost should have been at the actual level of activity
d) Amount spent is less than what was spent last period

Answer 1

A spending variance is favorable when the actual costs are less than the expected costs at the actual level of activity, which is an indicator of financial efficiency and effectiveness. (option c)

Step-by-step explanation:

The spending variance is labeled as favorable when the actual cost is less than what the cost should have been at the actual level of activity. This indicates that the company has spent less than anticipated for the level of activity actually achieved. A favorable variance is a positive indication of efficiency and can lead to better profitability. It is critical for businesses to understand spending variances to make informed decisions regarding budgets and operational efficiency.