The Production-Volume Variance Should Generally Not Be Calculated and Reported

question 47

Multiple Choice

The production-volume variance should generally not be calculated and reported for control purposes because, unless interpreted properly, it can:

• A) Distract top management by focusing on operational efficiencies/inefficiencies.
• B) Give information that only top management should have.
• C) Distort other variable-cost variances.
• D) Encourage overproduction by managers to achieve a favorable volume variance.
• E) Encourage underproduction by managers to avoid an unfavorable variance.

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Definitions:

Discount Period

The time frame in which a payment can be made with a discount for early payment, often used in terms of sales and accounts receivable to encourage prompt payment.

Gross Method

An accounting method for recording purchases at the gross invoice amount before any trade discounts are deducted.

Sales Discounts

A reduction offered by a seller on the list price of a product or service as an incentive for buyers, usually applied to promote sales, clear out inventory, or recognize volume purchases.

General Journal

A primary accounting record used to keep track of all business transactions not recorded in specialized journals, using the double-entry accounting method.