Based on Quiet Flag Industries budget and actual data, what is the operating cost variance?

• A. Favorable operating cost variance
• B. Unfavorable operating cost variance
• C. No variance
• D. Total variance cannot be determined

Answer: (A)

The idea here is to compare what was actually spent on operating costs with what was planned in the budget. The operating cost variance shows whether those costs came in under or over the budget.

Compute it as actual operating costs minus budgeted operating costs. If actual is less than budget, the result is negative, which is labeled favorable because spend was lower than expected. If actual exceeds the budget, the result is positive, labeled unfavorable. If they match exactly, there’s no variance.

In this situation, the actual operating costs were lower than the budget, so the variance is favorable. That’s why the correct choice is a favorable operating cost variance.