A Favorable Cost Variance of Significant Magnitude

question 30

Multiple Choice

A favorable cost variance of significant magnitude:

• A)Is the result of exceptional planning.
• B)May lead to future improvements in production methods if the variance is investigated to determine its underlying cause(s).
• C)Is strong evidence of excellent operating performance.
• D)Is strong evidence of tight financial control.
• E)Does not need to be investigated as to its underlying cause.

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Definitions:

Gross Margin

The difference between the revenue earned from sales and the cost of goods sold, indicating the profitability from the core business activities before administrative and other expenses.

Merchandise Purchases

Transactions involving the buying of goods for sale, typically in a retail or wholesale business setting.

Inventory Levels

The quantity of goods and materials on hand at a given time within a business.

Accounts Payable

Liabilities or amounts owed by a business to its suppliers or creditors for goods and services received but not yet paid for.