How Is the Calculation of a Variance Affected by an Observation

question 36

Multiple Choice

How is the calculation of a variance affected by an observation with a negative rate of return when other returns are positive?

• A)It reduces the variance
• B)It increases the variance
• C)Variance is not affected by negatives or positives
• D)The effect cannot be determined from this information

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Definitions:

Direct Materials

Raw materials that are traceable to the product and included in the direct costs of manufacturing.

Fixed Manufacturing Overhead

Represents the consistent costs associated with manufacturing that do not fluctuate with the level of production, such as rent, salaries, and equipment depreciation.

Direct Labor Cost

The wages and other compensation paid to employees who are directly involved in the production of goods or services.

Variable Costing

An accounting method that includes only variable production costs—direct materials, direct labor, and variable manufacturing overhead—in product costs, excluding fixed overhead.