Question 64

Actual revenue is higher than budgeted revenue.

A favorable revenue variance indicates that the actual revenue generated by the company exceeds the revenue that was anticipated in the budget.

A) The company sold fewer units than expected.

This option is incorrect because selling fewer units would typically result in lower actual revenue compared to the budgeted revenue, leading to an unfavorable variance rather than a favorable one.

B) The company's costs exceeded its revenue.

This option is also incorrect as it describes a scenario where the company is operating at a loss. A favorable revenue variance specifically pertains to higher revenues, not costs exceeding revenues.

C) Actual revenue is higher than budgeted revenue.

This option is correct because a favorable revenue variance arises when the actual income from sales surpasses expectations set in the budget, indicating better financial performance.

D) Actual revenue is lower than budgeted revenue.

This option is incorrect as it defines an unfavorable revenue variance. If actual revenue is lower than what was budgeted, it indicates that the company did not meet its financial targets.

Conclusion

In summary, a favorable revenue variance is defined by actual revenue exceeding budgeted projections, which signifies effective sales performance. The other options fail to accurately represent the concept of favorable variance, focusing instead on scenarios that demonstrate unfavorable outcomes or misinterpretations of revenue performance.