AMIS 525

Income Variance Sign and Desirability Relationship

NOTATION: Income Revenue Cost I R C

INCOME ALGEBRA:

I=R-C
I1 = R1 - C1 I2 = R2 - C2

Criterion: if I1 > I2, then I1 is preferred to I2

income variance =
Note:

I1 - I2

+ sign => I1 > I2 - sign => I1 < I2

If I1 is the actual income and I2 is the benchmark / reference / target / standard income , a + sign implies "favorable" and a - sign implies "unfavorable" comparing the actual income to the reference income. income variance = income variance = I1 - I2 = I1 - I2 = [R1 - C1] [R1 - R2]

- [R2 - C2] - [C1 - C2]

revenue variance =
Note:

R1 - R2

+ sign => R1 > R2 - sign => R1 < R2

If R1 is the actual revenue and R2 is the benchmark / reference / target / standard revenue, a + sign implies "favorable" and a - sign implies "unfavorable" comparing the actual revenue to the reference revenue.

cost variance =
Note:

C1 - C2
+ sign => C1 > C2 - sign => C1 < C2

If C1 is the actual cost and C2 is the benchmark / reference / target / standard cost, a + sign implies "unfavorable" and a - sign implies "favorable" comparing the actual cost to the reference cost.
1/9/2014