A company has a policy - "investigate all variances exceeding $3,000 or 15% of the budgeted cost."
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 should be investigated as all variances are equally important.
c) It deserves more attention as it is more than 15% of the total repair cost.
d) It should be considered an in-control occurrence.
Variances in Budgets:
Variances in budgets are the differences between the actual results and the expected results according to the budget. Management should decide on a policy of how to react to variances.
Answer and Explanation: 1
Let us consider the alternatives:
|a) It should be ignored as it is less than $3,000.||No, while it is less than $3,000, it is more than 15% of the...|
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fromChapter 9 / Lesson 16
Calculating variances is one component of budgeting and accounting in business. Understand the definition of variances in budgets, and examine how variances are calculated and analyzed.