Question

Which of the following statements are true?

The variance formulas only allow one factor to change at a time.

Variances always compare actual results to budgeted or standard results.

Favorable variances are always good and unfavorable variances are always bad.

Companies generally try to hold specific managers responsible for specific variances.

Answer 1

Variance analysis compares actual results to budgeted or standard results; not all variances signal good or bad outcomes without context, and businesses often hold managers accountable for specific variances.

Step-by-step explanation:

The subject of the question is concerned with the interpretation and implications of variance analysis in a business setting. The first statement is not entirely true, as variance formulas can be constructed to consider the simultaneous impact of multiple factors. However, it is often ideal to analyze one factor at a time for clarity. The second statement is true: variances typically compare actual results to budgeted or standard results to determine performance deviations. The third statement is a misconception; favorable variances are not always good, and unfavorable variances are not always bad, as the context of the variance is crucial. A favorable variance could signal overestimation of costs or underproduction, and an unfavorable variance could indicate an investment for future growth. Finally, it is common practice for companies to try to hold specific managers accountable for specific variances to maintain transparency and control over business processes and performance.