A favorable cost variance of significant magnitude:
A)Is the result of exceptional planning.
B)May lead to future improvements in production methods if the variance is investigated to determine its underlying cause(s).
C)Is strong evidence of excellent operating performance.
D)Is strong evidence of tight financial control.
E)Does not need to be investigated as to its underlying cause.

Question

Quizplus · Accepted Answer

A favorable cost variance of significant magnitude may indicate that the production methods used were more efficient than anticipated. Investigating the underlying cause(s) of the variance can help identify the factors that contributed to the positive result and lead to future improvements in production methods. This is also in line with the concept of continuous improvement. Therefore, option B is the best choice. Option A, C, D, and E are not necessarily correct, as a favorable cost variance may not always result from exceptional planning, excellent operating performance, or tight financial control. Moreover, it is essential to investigate the underlying cause(s) of the variance to ensure that it is not due to an error or a one-off event.

A Favorable Cost Variance of Significant Magnitude