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A company has a policy - "investigate all variances exceeding $3,000 or 15% of the budgeted...

Question:

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

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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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Variances in Budgets: Definition, Calculations & Analysis

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Chapter 9 / Lesson 16
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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.


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