Which statement correctly reflects the sign of a cost variance when actual costs are less than budgeted costs?

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Prepare for the WGU ACCT2350 Intro to Business Accounting Exam. Practice with multiple choice questions and detailed solutions to sharpen your accounting skills. Master your exam with confidence!

Multiple Choice

Which statement correctly reflects the sign of a cost variance when actual costs are less than budgeted costs?

Explanation:
Cost variance is found by subtracting the budgeted cost from the actual cost. When actual costs are less than what was budgeted, the result is negative. That negative sign shows you spent less than planned, which is favorable for cost control. For example, budgeted $50,000 and actual $47,000 gives a variance of -$3,000, indicating under-spending by $3,000. A positive variance would mean spending more than budget, zero means exactly on budget, and indeterminate isn’t applicable here.

Cost variance is found by subtracting the budgeted cost from the actual cost. When actual costs are less than what was budgeted, the result is negative. That negative sign shows you spent less than planned, which is favorable for cost control. For example, budgeted $50,000 and actual $47,000 gives a variance of -$3,000, indicating under-spending by $3,000. A positive variance would mean spending more than budget, zero means exactly on budget, and indeterminate isn’t applicable here.

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