Examine the main reasons why manufacturing companies are more sensitive to material price variances, as compared to labor variances, and determine the importance of companies managing these variances in relation to sustaining profitability

Examine the main reasons why manufacturing companies are more sensitive to material price variances, as compared to labor variances, and determine the importance of companies managing these variances in relation to sustaining profitability

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Description: Examine the main reasons why manufacturing companies are more sensitive to material price variances, as compared to labor variances, and determine the importance of companies managing these variances in relation to sustaining profitability.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Similar questions

1. What are the three primary reasons of using a standard cost system? In a business that routinely manufactures the same products or performs the same services, why are standards helpful? 2. What are ideal standards? What are currently attainable standards? Explain which standard is usually adopted and why. 3. Some people suggest that the direct labor rate variance is never controllable. Do you agree or disagree? Give reasons to support your answer.
Which of the following is not an application of cost-volume-profit analysis? Setting prices for products and services. Performing strategic “what-if” analyses. Deciding whether to cut a product line. Determining the short-term cost or profit implications of many decisions. Deciding whether to make or buy a given product or service.
Why is the identification of favorable and unfavorable variances so important to a company? How can the identification of the variances help management control costs? Please explain. Considering the flexible budgeting topic, it is important to look at this analysis as a significant contribution to the management of the company. Knowing what the bottom line profit or loss is important. But what is more important is to understand how your actual results varied in terms of units sold versus how the actual cost of each unit differed from the budget. What is a good example of this?
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Companies benefit greatly from the use of a standard cost system, and the statement?
Ashvin
Which statement is true? A. Gross profit (GP) variance analysis, is an essential part of financial statements analysis that is used to evaluate the performance of a firm's departments responsible for the firm's line activities (functions). B. Increases and decreases in sales and cost of sales have direct relationship with increases and decreases in GP. C. If there is a negative sales price variance and there is no cost variance, the gross profit variance will be equal to the sales price variance. D. A zero cost variance indicates that there is no difference between the standard cost prices and actual cost prices. E. none of the above
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Bulldogs Inc. wants to determine the impact of the change in selling price of its sole product in relation to the analysis of its gross profit. Which of the following must the company determine? a. Sales Volume Variance b. Cost Price Variance c. Volume Variance d. Sales Price Variance
Should both favorable and unfavorable variances be investigated, or only the unfavorable ones? Explain your response. What if a company found that they had a favorable price variance and an unfavorable quantity variance for direct materials. What might be the cause(s) of this pattern of variances?
How frequently do you believe that firms should conduct variance analysis? Explain why?
Describe the differences in behavior of fixed costs, variable costs, semi-variable costs and step costs. Then discuss how break-even analysis and contribution margin can be useful in making business decisions.