Question

The total variance for any particular cost component is referred to as the:

1) price variance.
2) efficiency variance.
3) budget variance.
4) none of these.

Answer 1

The total variance for any particular cost component is referred to as the budget variance, which includes all variances that affect total cost, encompassing both price impacts and efficiency.

Step-by-step explanation:

The total variance for any particular cost component is referred to as the budget variance. Budget variance is the difference between what was budgeted or expected and the actual result. Variance can be divided into several categories, including price variance and efficiency variance, but budget variance is the overarching term that encompasses the total difference in costs.

While price variance deals with the difference in actual versus expected cost of materials or labor, and efficiency variance is concerned with the use of resources, neither of these terms is broad enough to describe the aggregate variance for any particular cost component. Budget variance captures both price and efficiency impacts, along with any other variances that affect the total cost.