Final answer:
Cost variances measure how well a business maintains its material and labor unit costs within predefined standards, not the comparison with competitors’ costs or volume discounts. They are an integral part of cost control and financial management in a company.
Step-by-step explanation:
Cost variances measure C) how well the business keeps unit costs of material and labor inputs within standards. These variances are crucial as they help a company evaluate its performance by comparing the actual costs incurred to the predetermined standard costs. Analyzing cost variances allows companies to control production costs, optimize resource usage, and enhance overall financial management.
Breaking down total costs into fixed cost, marginal cost, average total cost, and average variable cost is a key practice in management accounting. These cost measures provide businesses with insights necessary for informed decision-making and financial planning. As a company's output changes, variable costs such as labor and raw materials will also vary, which impacts the cost variance.