Chapter 17, Problem 1RQ

What complication arises in variance analysis when the number of units produced is not the same as the number of units sold?

To determine

Identify the complication which arises in variance analysis when the number of units produced is not the same as the number of units sold.

Explanation of Solution

Variance analysis:

Variance analysis is the tool to determine the difference between actual and predetermined costs. It provides control over the business. The difference between the actual and predetermined costs can be analyzed and interpreted thereof.

A complication that can arise in variance analysis:

A part of sales that comes from inventory the production becomes unequal to the sales. The costs of production expensed would not be equal to the production costs incurred by the company. The decision of proration between Cost of goods sold and Finished goods inventory is required to be made.