COST ACCOUNTING
FLEXIBLE BUDGETS
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
Favorable variances are always debits
|
|
|
Unfavorable variances are always creditS
|
|
|
Favorable variances occur whenever actual prices or actual usage of inputs are greater than standard prices or standard usage
|
|
|
Unfavorable variances occur whenever actual prices or actual usage of inputs are greater than standard prices or standard usage
|
Detailed explanation-1: -An unfavorable price variance occurs whenever the actual prices are greater than the standard prices. The standard cost sheet provides the input standards needed to compute the total amount of inputs allowed for the actual output, an essential component in computing efficiency variances.
Detailed explanation-2: -The correct answer is b. Actual expenses are less than expected. A favorable variance occurs when: actual costs are lower than the expected costs because this would increase the company’s income.
Detailed explanation-3: -An unfavorable variance can occur due to changing economic conditions, such as lower economic growth, lower consumer spending, or a recession, which leads to higher unemployment. Market conditions can also change, such as new competitors entering the market with new products and services.
Detailed explanation-4: -When revenue is higher than the budget or the actual expenses are less than the budget, this is considered a favorable variance. Unfavorable variances refer to instances when costs are higher than your budget estimated they would be.