Cost Variances Should Be Investigated When

question 136

Multiple Choice

Cost variances should be investigated when

• A)the results are favourable but within acceptable limits.
• B)costs incurred must be reduced.
• C)expected costs of investigation exceed expected benefits.
• D)the results are unfavourable but within acceptable limits.
• E)the amounts are immaterial.

---

Definitions:

Contribution Format

An income statement format that separates fixed and variable costs, showing the contribution margin which covers fixed costs and profits.

Absorption Costing

A bookkeeping strategy that encompasses all production expenses, including direct materials, direct labor, and variable plus fixed overhead, into the pricing of a product.

Variable Costing

An accounting method that only includes variable production costs (direct materials, direct labor, and variable manufacturing overhead) in product costs and treats fixed overhead expenses as period costs.

Variable Costing Income

An accounting method that considers only variable costs—costs that vary with production—when determining cost of goods sold and, ultimately, income.