CPAP 2010 Question?

[IAHG]

Hi everyone,
In CPAP 2010, there's a question involving a variance report for the balance sheet. The budgeted accrued wages was $3000 but the actual was $5000, and the question asked you to say whether this is favorable or unfavorable. I thought it was favorable since they avoid paying more wages than necessary (even though they still have to pay back that much in the future) but CPAP says that it is unfavorable. They didn't even provide any explanations, so if someone could help, that would be great.

Thanks
IAHG

[mikesguns]

It unfavourable because the wages expense is higher

[IAHG]

How do we know this? Couldn't they have the same wages amount and decide not to pay because of liquidity problems?

[BakaNeko]

In terms of a balance sheet, you would want the least possible amount of liabilities as they represent future asset outflows for the business (in this case cash). If you looked at the KPIs that VCAA provides that measure liquidity, increase in liabilities will also tend to appear as a less liquid business thus unfavourable.

If it were a cash flow variance thing then it would be considered favourable, assuming wages expense remained the same.