ECONOMICS

Detailed explanation-1: -Variance analysis facilitates the principle of “management by exception.” An advantage of standard costs is that they simplify costing of inventories and reduce clerical costs. A direct labor price standard is frequently called the direct labor efficiency standard.

Detailed explanation-2: -Management by exception is a system of management where managers only intervene if actual results vary from expected results. Variance analysis is a tool used in management by exception to determine differences in expected and actual results. Management by exception presents both advantages and disadvantages.

Detailed explanation-3: -Variance analysis is used in budgeting and management accounting. It is a study of the variation (difference) between an actual (forecasted) action and a planned action. Variance analysis carries out a quantitative investigation to find out the difference between the actual cost and the standard cost of production.

Detailed explanation-4: -11-1 Management by exception is the practice of concentrating on areas not operating as expected and giving less attention to areas operating as expected. Variance analysis helps managers identify areas not operating as expected. The larger the variance, the more likely an area is not operating as expected.

Detailed explanation-5: -Which statement regarding variable overhead variance analysis is true? The variable overhead efficiency variance is exactly the same as the direct labor rate variance.