Question

Which of the following are true? (Multiple select question.)

a) The decomposition of the profit variance provides information that would be useful for control purposes.
b) The decomposition of the profit variance means breaking it down into revenue and cost components.
c) It is not important in variance analysis to understand what might cause a difference between actual and budgeted results.
d) The decomposition of the profit variance is more informative than the simple profit variance.

Answer 1

The decomposition of profit variance involves breaking it down into revenue and cost components. It is more informative than the simple profit variance. Understanding the causes of differences between actual and budgeted results is important in variance analysis.

Step-by-step explanation:

Of the given options, b) and d) are true about the decomposition of profit variance.

1. Option b) is true because the decomposition of profit variance involves breaking it down into revenue and cost components. By analyzing the revenue and cost factors separately, a business can identify specific areas contributing to the variance.
2. Option d) is also true as the decomposition of profit variance is more informative than the simple profit variance. It provides a detailed breakdown of the factors affecting profits, helping businesses understand the specific influences behind profit differences.

Option a) is not true because the decomposition of profit variance is more useful for analysis and understanding rather than control purposes. It helps identify specific areas of improvement, but it does not directly control the variance. Option c) is also not true because understanding the causes of differences between actual and budgeted results is crucial in variance analysis. It helps identify areas for improvement and adjustments in budgeting.