A company has a policy "investigate all variances exceeding $3,000 or 15% of the budgeted cost, whichever is lower." There is a variance of $2,000 in repair and maintenance costs of $12,000. What does the company do in the given situation?
A) It should be ignored as it is less than $3,000.
B) It deserves more attention as it is more than 15% of total repair cost.
C) It should be considered an in-control occurrence.
D) It should be investigated as all variances are equally important.

Question

Quizplus · Accepted Answer

The variance of $2,000 is more than 15% of the budgeted cost of $12,000, which is $1,800. Since $1,800 is lower than $3,000, the variance should be investigated according to the policy.

A Company Has a Policy "Investigate All Variances Exceeding $3,000