What is one consequence of an adverse variance?

An adverse variance occurs when actual financial performance falls short of expectations, which typically translates to higher costs than budgeted or lower revenues than anticipated. When this happens, one prominent consequence is experiencing financial losses. This means that the organization has not only deviated from its financial targets but is also likely incurring more expenses than planned or generating less income, leading to a negative impact on profitability.

In this context, experiencing financial losses can compel a business to reassess its strategies, control costs more effectively, or seek ways to improve revenues. Understanding adverse variances is crucial for financial management, as it signals areas requiring immediate attention to mitigate further financial damage.

The other options, such as receiving unexpected profits, decreasing expenses, or stabilizing cash flow, do not align with the implications of an adverse variance. These scenarios would typically reflect positive financial outcomes or operational efficiencies rather than the detrimental effects observed with an adverse financial variance.