The bottom line is that managers should automatically interpret a favorable variance as "good news."

Question

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Managers should not automatically interpret a favorable variance as "good news." Managers must be sure that they accurately understand the full causes of a variance before using it for performance evaluation.For example,assume a manager of a granite manufacturing company has negotiated a very low price for direct materials.This would result in a favorable variance but would not take into account whether the materials were of subpar quality,ultimately costing the company more to replace and correct production quality issues.

The Bottom Line Is That Managers Should Automatically Interpret a Favorable