Question

Troy Company budgeted​ $12 million for customer service​ costs, but actually spent only​ $10 million. Which of the following statements is the best course of action for management to take in this​ instance? A. Management will investigat this $2 million favorable variance to ensure that the cost savings do not reflect skimping on customer service.
B. Because this $2 million variance is favorable, management does not need to investigate further.

C. Management will investigate this $2 million unfavorable variance to try to identify and correct the problem.

D. Management should not investigat every major variance, especially an unfavorable variance.

Answer 1

Answer:

The correct answer is A

Explanation:

A variance which is favorable, although have a positive sign for any company could not be ignored completely as ti could be a consequence of compromising on the quality of service of the customer being provided which could affect the company in the long run. So, it is very vital to keep a check on the favorable as well as on the unfavorable variances.

So, Management should investigate the $2 million favorable variance in order to ensure the cost savings which should not reflect on the customer service.