Final answer:
The statement is true because variances need to be carefully interpreted within the context of each situation, and not all favorable or unfavorable variances reflect good or bad performance, respectively.
Step-by-step explanation:
The statement 'Favorable and unfavorable variances are not necessarily indicators of good or bad performance' is true. Variance analysis in accounting looks at the differences between planned and actual numbers. A favorable variance indicates that actual income is higher than projected, or costs are lower than expected. Conversely, an unfavorable variance means actual income is lower, or costs are higher. However, these variances must be interpreted within context as they could be due to several factors such as changes in market conditions, one-time events, or managerial decisions. For example, a favorable variance in material costs could be due to purchasing lower quality materials, which may not be a 'good' outcome for the business in the long term.
One assumption that must be true to perform an F test of two variances is that the populations from which the samples are drawn must be normally distributed.