Final answer:
In the context of management accounting, not all unfavorable variances signal a problem, and sometimes favorable variances can reveal poor performance. Both terms signify the difference between actual and budgeted or standard costs.
Step-by-step explanation:
The subject of this question is related to management accounting and the concept of variances, which is a part of cost accounting and performance measurement in business. Variance analysis is used to assess the difference between expected (budgeted or standard) costs and actual costs.
The statements given by the student relate to the interpretation of 'favorable' and 'unfavorable' variances. The statements can be assessed as follows:
- An unfavorable variance is not always indicative of a problem; it could be due to changes in the business environment, a deliberate strategy, or other external factors.
- Sometimes, a favorable variance can indeed indicate poor performance, such as underestimation of potential or underutilization of resources.
- It is true that favorable and unfavorable reflects a difference between actual and standard costs; this is the fundamental principle behind variance analysis.