Question 45

Actual revenue is higher than budgeted revenue.

A favorable revenue variance indicates that the actual revenue generated by a company surpasses the amount that was budgeted or projected.

A) Actual revenue is lower than budgeted revenue.

This option describes an unfavorable revenue variance, as it indicates that the company did not meet its revenue expectations, which is the opposite of what a favorable variance signifies.

B) The company’s costs exceeded its revenue.

This statement refers to a scenario where expenses are greater than income, leading to a loss. Such a situation would not relate to revenue variance but rather to overall financial performance, making it incorrect in the context of favorable revenue variance.

C) The company sold fewer units than expected.

Selling fewer units than anticipated would lead to lower revenue and thus result in an unfavorable variance. This option directly contradicts the definition of a favorable revenue variance.

D) Actual revenue is higher than budgeted revenue.

This is the correct option, as it accurately reflects the meaning of a favorable revenue variance. When actual revenue exceeds budgeted revenue, it indicates better-than-expected financial performance.

Conclusion

A favorable revenue variance is specifically defined as a situation where actual revenue exceeds budgeted revenue, demonstrating the company's ability to generate more income than anticipated. All other options misinterpret the concept, either indicating a negative performance or unrelated financial metrics.