Grey Manufacturing has prepared the following flexible budget for October and it is in the process of interpreting the variances.F denotes a favorable variance and U denotes an unfavorable variance.
Required:
a.Explain what each of the following variances indicates.
1.For Material A,the favorable price variance indicates that…
2.For Material A,the unfavorable quantity variance indicates that…
3.For direct labor,the unfavorable price variance indicates that…
4.For direct labor,the favorable efficiency variance indicates that…
b.Which two variances do you think should be investigated by management? Why?
Definitions:
Undisclosed Principal
A principal whose identity is concealed from the third parties with whom the agent is dealing; the rights and obligations of the parties depend on whether the agent makes it clear that she is representing an undisclosed principal rather than operating on her own behalf.
Continuing Business
An ongoing enterprise that maintains its operations over time, adapting to changes as necessary to remain viable.
Consent
Agreement or permission for something to happen, given by someone with full understanding of what is involved.
Modified
Changed or adjusted from the original form, purpose, or condition.
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