FINANCIAL AND MANAGERIAL ACCOUNTING
9th Edition
ISBN: 9781264899180
Author: Wild
Publisher: MCG
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Chapter 21, Problem 2BTN
The reason we use the words favorable when evaluating variances is made clear when we look at the closing of accounts. To see this, consider that (1) all variance. Accounts are closed at the end of each period (temporary accounts), (2) a favorable variance is always a credit balance, and (3) an unfavorable variance is always a debit balance. Write a half-page memorandum to your instructor with three parts that answer the three following requirements. (Assume that variance accounts are closed to cost of Goods Sold.)
- Does Cost of Goods Sold increase or decrease when closing a favorable variance? Does gross margin increase or decrease when a favorable variance is closed to Cost of Goods Sold? Explain.
- Does Cost of Goods Sold increase or decrease when closing an unfavorable variance? Does gross margin increase or decrease when an unfavorable variance is closed to cost of Goods Sold? Explain.
- Explain the meaning of a favorable variance and an unfavorable variance.
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Students have asked these similar questions
Determine the most accurate statement about variances.
1.) what is the spending variance for wages and salaries? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect)
2. What is spending variance for total expenses ? (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect)
Which of the following statements is false?
All material variances, favorable or unfavorable, need to be investigated to determine the cause of the variance.
The total budget variance provides sufficient information about the cause of the variance.
A budget variance can be further broken down into the quantity and price variances.
The quantity variance can be calculated by comparing the total costs under the static and flexible budget.
A quantitatively favorable or unfavorable variance might have a different favorability from a qualitative perspective.
Chapter 21 Solutions
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- At the end of the year, when closing the books, what is the treatment for immaterial standard variance account bal-ances? What is the treatment for standard variance account balances that are material in amount?arrow_forward1. Prepare a performance report that compares static budget and actual costs for the period just ended (i.e., the report that Kellerman likely used when assessing his performancearrow_forwardWhen management uses variance reports to evaluate cost control, they look into which of the following? O both variable and unfavorable variances that exceed a predetermined quantitative measure such as a percentage or dollar amount. no variances O unfavorable variances only O favorable variances onlyarrow_forward
- Which of the following is FALSE regarding variances? O A favorable variance, when it occurred, are debited to the related variance account. O Mathematically, an unfavorable variance has a positive value. O Favorable variances occur whenever actual prices or actual usage of inputs are lower than standard prices or standard usage. O A variance is the remaining portion after subtracting the standard cost from the actual cost. Next Previousarrow_forwardWhich of the following statements is true of performance reporting? A. Responsibility reports should focus on the person responsible for unfavorable variances, rather than information. B. Every variance, regardless of magnitude, must be investigated by the managers. C. Managers should not be held accountable for uncontrollable variances. D. Only unfavorable variances in the reports should be explained.arrow_forwardPlease help me correct the box marked with an X. Thanks!arrow_forward
- I need help with problems 1 a-b, and 2-a-c. Part of 1 b is cut off, to clarify it says that I need to solve for the "price variance" and the "spending variance." Thanks for the help in advance!arrow_forwardMa1.arrow_forwardVariance analysis is an extremely important tool in accounting, so unfavourable variances must be taken very seriously by accountants and managers”. How would you respond to this statement? Make use of examples in your explanation - 150 words please :)arrow_forward
- I need help nowarrow_forwardGauging the Favorableness of Variances When variances occur, they are described as being either favorable or unfavorable. When actual activity consumes more time or money than initially planned, an unfavorable variance exists. However, when actual activity consumes less time or money than initially planned, a favorable variance exists. Note that the terms favorable and unfavorable are used, rather than saying that a variance is good or bad, because until the cause of a variance is discovered, it is not clear whether a variance is either good or bad. Note: Use the minus sign to indicate negative values (when the budgeted amount is greater than the actual). If a company calculates that the actual cost for materials used was $4,800,000, and the amount budgeted for those materials was $3,400,000, the actual cost for materials used less the budgeted cost for materials used is $ This tells you that the actual cost at actual materials used is greater than -v the budgeted cost at actual hours…arrow_forwardThe differences between actual and budgeted figures are known as type your answer... 2 Which of the following is true about unfavorable variances? Managers generally investigate only unfavorable variances as part of "management by exception." Unfavorable variances will always be negative numbers when subtracting actual figures minus budgeted figures. O Unfavorable variances should always be interpreted as “bad news" for the company. Unfavorable variances are variances that cause operating income to be lower than budgeted.arrow_forward
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