Question

13 Which of the following is a true description of variance?

(i) Managers should interpret an unfavorable variance as "bad signals"

(ii) A company can determine whether a variance should be investigated.

(iii) The purchasing manager secured a discount for buying in bulk with fewer purchase orders which results in unfavorable material price variance.

(iv) Managers' performance should be evaluated on multiple variances.

Select one:

a. (ii), iii), (iv)

b. (ii), (iv)

c. (i), (ii), (iii)

d. (i), (ii), (iii), (iv)

Answer 1

C. answer is (i), (ii), (iii)

(i). unfavourable balance should be a bad signal. when actual is more than the standard, the variance is the unfavorable. As such, let under stand with example :-

A compnay want to purchase the raw material there budget standard rate are $ 10, and the company are purchase for $ 15.

actual rate - standard rate = $15 - $10 = $5 is unfavorable because the company have to pay more there budget expected.

(ii). company should investigate the unfavorable variable. if the actual vairance is equal and less than the standard variance is favourable variance than company is performing good in there managing the cost. If the actual variance is more than the standard variance is unfavourable variance, then company is warry about the increase in there cost of material, labour, overhead. As such, company is investigate the unfavourable variance.

(iii). manager is purchase the material in bulk or large quantities for the short period there will be the unfavourable in the price because the budget for the short perriod of the company can not meet there obligations. As such, actual price in short run is more than the standard price that cause in unfavourable material price.