Which statement defines an adverse variance?

• A. Results are better than expected.
• B. The results are exactly as expected.
• C. Adverse variance occurs when actual results are worse than expected.
• D. Variance is not used for cost control.

Answer: (C)

In variance analysis, you compare what actually happened with what was planned or standard. An adverse variance is simply when actual results are worse than what was expected, indicating a shortfall or overspending relative to the plan. This helps management spot where performance isn’t meeting targets and may need investigation or corrective action. For example, if the budgeted cost per unit is $5 but the actual cost is $6, that cost variance is adverse. If actual revenue falls short of the budgeted revenue, that revenue variance is also adverse. Conversely, better-than-expected results are called favorable variances.