Question

Which of the following is the correct formula for measuring a cost variance? A. Cost Variance = (Actual Cost + Standard Cost) / Actual Quantity B. Cost Variance = (Actual Cost + Standard Cost) + Actual Quantity C. Cost variance = (Actual Cost-Standard Cost) - Actual Quantity D. Cost Variance = (Actual Cost - Standard Cost) x Actual Quantity

Answer 1

The correct formula to calculate cost variance is Cost Variance = (Actual Cost - Standard Cost) x Actual Quantity. This calculation is crucial for businesses to manage and assess budget performance.

Step-by-step explanation:

The correct formula for measuring a cost variance is C. Cost variance = (Actual Cost - Standard Cost) x Actual Quantity. Cost variance is a measure used in budgeting and financial management to determine how much a project’s actual cost deviates from the budgeted or standard cost. It represents the difference between the expected cost of a particular quantity of goods or services (standard cost) and the actual cost incurred. It is calculated by subtracting the standard cost from the actual cost and is often used to assess the performance of budget management within a firm.

Answer 2

The correct formula for measuring cost variance is the subtraction of the standard cost from the actual cost, which gives insight into whether production costs are above or below expectations.

Step-by-step explanation:

The correct formula for measuring a cost variance is:

Cost Variance = (Actual Cost - Standard Cost)

This formula is used to determine whether the actual cost of producing a good or service is above or below the expected, or 'standard,' cost. A positive cost variance indicates that production was more expensive than planned, while a negative cost variance indicates it was less expensive. This measure is crucial for businesses to understand their cost management performance and to make informed decisions regarding their production processes.