Management Accounting Uses Variance Analysis to Explain What and Why

question 22

Multiple Choice

Management accounting uses variance analysis to explain what and why something happened in the cost of producing products. It is done by comparing actual outcomes to expected, or standard, costs. What is the expectation when the usage of raw materials unexpectedly decreases below the standard quantity used?

• A) Unfavorable price variance
• B) Favorable price variance
• C) Unfavorable quantity variance
• D) Favorable quantity variance

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Definitions:

Maturity Date

The specific date on which the principal amount of a bond, loan, or other financial instrument is due to be paid in full.

Contract Rate

The interest rate specified in a contract, such as that in a loan or bond agreement.

Times Interest Earned Ratio

A financial metric that measures a company's ability to meet its interest obligations from its earnings before interest and taxes.

Income Statement

A financial statement that shows a company’s revenues, expenses, and profits over a specific period, typically a quarter or year.