In deciding whether to further investigate a cost variance, managers usually:
A) Investigate all variances judged to be systematic in nature.
B) Investigate all variances under a prescribed percentage limit.
C) Investigate all variances associated with factory overhead spending, since total overhead for a firm is typically large.
D) Investigate all variances over a given dollar amount or percentage.
E) Investigate all flexible-budget but not volume-related variances.

Question

Quizplus · Accepted Answer

Managers usually investigate cost variances over a specific dollar amount or percentage. This threshold is usually set based on the size of the variance and the materiality of the amount to the overall budget or financial statements. Investigating all variances may be time-consuming and impractical, while investigating only those under a prescribed percentage limit or flexible-budget but not volume-related variances may not capture significant variances. Investigating all overhead variances is also unnecessary, as some variances may not materially impact the overall performance of the organization.

In Deciding Whether to Further Investigate a Cost Variance, Managers