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Chapter 23: Q1CA (page 1323)

In 75 words or fewer, explain what a cost variance is and describe its potential causes.

Short Answer

Expert verified

Cost variance gauges how closely a business keeps its actual costs within the acceptable range.

Step by step solution

01

Meaning of Variance

The variance is the difference between the actual cost and the standard cost. The sum of the variance attributable to specific contingencies is shown by dividing the total cost variance into the different cost variances.

02

Explaining cost variance

How successfully a corporation maintains the actual cost within the norm is measured by cost variance. The cost variance displays a favorable variation if the actual cost per unit is lower than the benchmark. The cost variance displays an unfavorable variation if the actual cost per unit is higher than the benchmark.

The formula to calculate Cost variance is as follows:

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Most popular questions from this chapter

Preparing flexible budgets

Moje, Inc. manufactures travel locks. The budgeted selling price is \(19 per lock, thevariable cost is \)9 per lock, and budgeted fixed costs are $13,000 per month. Prepare aflexible budget for output levels of 4,000 locks and 11,000 locks for the month endedApril 30, 2018.

Explain the difference between a favorable and an unfavorable variance.

Question:List the direct labor variances, and briefly describe each.

Matching terms

Match each term to the correct definition.

Terms Definitions

a. Flexible budget

b. Flexible budget variance

c. Sales volume variance

d. Static budget

e. Variance

1. A summarized budget for several levels of volume thatseparates variable costs from fixed costs.

2. A budget prepared for only one level of sales.

3. The difference between an actual amount and thebudgeted amount.

4. The difference arising because the company actuallyearned more or less revenue, or incurred more or lesscost, than expected for the actual level of output.

5. The difference arising only because the number ofunits actually sold differs from the static budget units.

Question:How does the static budget affect the cost and efficiency variances?
See all solutions

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