Question

The overhead variances measure whether overhead costs

Question options: 1) Are Effectively Managed - controllable; Were Used Effectively - controllable and volume
2) Are Effectively Managed - controllable; Were Used Effectively - volume
3) Are Effectively Managed - controllable and volume; Were Used Effectively - controllable
4) Are Effectively Managed - volume; Were Used Effectively - controllable

Answer 1

The overhead variances measure both controllable aspects (such as efficiency in management) and volume-related aspects (such as the efficiency of capacity utilization), hence the correct answer is that overhead variances indicate if costs are 'Effectively Managed - controllable and volume; Were Used Effectively - controllable'.

Step-by-step explanation:

The overhead variances measure whether overhead costs:

1. Are Effectively Managed - controllable; Were Used Effectively - controllable and volume
2. Are Effectively Managed - controllable; Were Used Effectively - volume
3. Are Effectively Managed - controllable and volume; Were Used Effectively - controllable
4. Are Effectively Managed - volume; Were Used Effectively - controllable

The correct option is 3) Are Effectively Managed - controllable and volume; Were Used Effectively - controllable. In the context of overhead variances, controllable overhead variances indicate whether the overhead costs have been effectively managed within the scope of management control. Volume variances, on the other hand, measure the efficiency of utilizing the production capacity or the level of activity against a predetermined standard. Both aspects are important for a comprehensive understanding of how well costs are managed and utilized within a business.