Question

Which is true if the DM price variance is immaterial

a. The company should investigate the cause of the variance.
b. The company should ignore the variance.
c. The variance has no impact on financial reporting.
d. The company should reduce production to control costs.

Answer 1

If the DM price variance is immaterial, it has no impact on financial reporting.

Step-by-step explanation:

If the DM (Direct Materials) price variance is immaterial, it means that the difference between the standard cost and the actual cost of materials used in production is not significant enough to impact the company's financial reporting. In this case, the correct answer would be option C: The variance has no impact on financial reporting.

When a variance is immaterial, it is typically not necessary for the company to investigate the cause of the variance or take any specific action to control costs. However, it is always good practice for companies to monitor and analyze variances on a regular basis, even if they are considered immaterial, to identify any patterns or trends that could contribute to larger variances in the future.

It is important to note that the determination of whether a variance is material or immaterial may vary depending on the specific circumstances and financial reporting requirements of the company.