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Hurricane, Inc. manufactures hurricane lamps. Selected data regarding standard costs follow:
Selected actual results for the month of August are shown below:

-Which of the following statements about variance analysis is correct?
A)All variances should be investigated
B)Favorable price variances should be rewarded
C)Unfavorable quantity variances are the fault of production
D)Management should investigate only variances that are relatively large

Question

Use the following to answer questions
Hurricane, Inc. manufactures hurricane lamps. Selected data regarding standard costs follow:
  Selected actual results for the month of August are shown below:
 
-Which of the following statements about variance analysis is correct?
A)All variances should be investigated 
B)Favorable price variances should be rewarded 
C)Unfavorable quantity variances are the fault of production 
D)Management should investigate only variances that are relatively large

Quizplus · Accepted Answer

Management should focus their investigative efforts on variances that are relatively large, as small variances are likely to be within the acceptable range of deviation. All variances are not necessarily worth investigating, as some may be immaterial or insignificant. Favorable price variances should not necessarily be rewarded, as they may be the result of purchasing from a supplier with lower quality materials or eligibility issues. Unfavorable quantity variances may be attributed to various factors beyond the production department's control, such as a sudden increase in demand or machine breakdowns.

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