Question

Which of the following statements are true? When calculating variances at least one factor changes at a time. Variances cause companies to hold managers responsible for things our of their control. Variances provide information that can help managers take corrective action if needed. Favorable variances are not always good and unfavorable variances are not always bad.

Answer 1

Answer:

Option B and C

Explanation:

The reason is that the variance analysis is a control procedure and it helps managers to control things that can be controlled. The managers are not liable for the things that are not controllable. Variance analysis conducted every week or month, provides information to managers which helps them to take corrective action for example, if material variance is because of price increases then the manager must search for other suppliers providing at a lower cost.

Furthermore, the favourable variances is not good always because it might had adverse variance in the other part part of the cost element. For example the material variance was positive because we used raw material of down quality so we saved $5000. The sales droped and we lost contribution of $10000 due to using down quality material. So its evident that favourable variances are not always good.