FINANCIAL+MANAG.ACCT.
9th Edition
ISBN: 9781260728774
Author: Wild
Publisher: RENT MCG
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Textbook Question
Chapter 21, Problem 2BTN
The reason we use the words favorable when evaluating variances is made clear when we look at the closing of accounts. To see this, consider that (1) all variance. Accounts are closed at the end of each period (temporary accounts), (2) a favorable variance is always a credit balance, and (3) an unfavorable variance is always a debit balance. Write a half-page memorandum to your instructor with three parts that answer the three following requirements. (Assume that variance accounts are closed to cost of Goods Sold.)
- Does Cost of Goods Sold increase or decrease when closing a favorable variance? Does gross margin increase or decrease when a favorable variance is closed to Cost of Goods Sold? Explain.
- Does Cost of Goods Sold increase or decrease when closing an unfavorable variance? Does gross margin increase or decrease when an unfavorable variance is closed to cost of Goods Sold? Explain.
- Explain the meaning of a favorable variance and an unfavorable variance.
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Please help me work this out. The four choices in the drop-down boxes under general journal in the second picture are: accounts payable, accounts receivable, cash and controllable variance.
When a variance occurs between the budgeted amount and the actual expenditures, it is important to:
O Analyze the variance and update the budget accordingly.
Analyze the variance to determine if it is significant, and then determine if the variance needs to
be corrected or the budget adjusted.
Note the variance and and make changes to your business operations to bring the actual
expenses back in line with the budget.
The following is a partial performance report for a revenue center for the Southeast Division of Flower City Restaurants.
(Click the icon to view the financial results.)
Fill in the missing amounts. Indicate whether each variance is favorable (F) or unfavorable (U). (Enter the variances as positive numbers and round the vari
percentages to the nearest tenth of a percent, X.X%. Label each variance as favorable (F) or unfavorable (U).)
Product
Food
Dessert
Bar
Catering
Flower City Restaurants
Southeast Division Sales Revenue for
For the Month Ending June 30
$
$
$
$
Actual Sales Budgeted Sales
146,000
22,000
54,000
55,000
141,620 S
21,340 $
58,320 $
52,800 $
Variance
(U or F)
GLUTE
Variance %
(U or F)
%
%
%
%
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Which of the following statements is false? All material variances, favorable or unfavorable, need to be investigated to determine the cause of the variance. The total budget variance provides sufficient information about the cause of the variance. A budget variance can be further broken down into the quantity and price variances. The quantity variance can be calculated by comparing the total costs under the static and flexible budget. A quantitatively favorable or unfavorable variance might have a different favorability from a qualitative perspective.arrow_forwardWhen management uses variance reports to evaluate cost control, they look into which of the following? O both variable and unfavorable variances that exceed a predetermined quantitative measure such as a percentage or dollar amount. no variances O unfavorable variances only O favorable variances onlyarrow_forward1. Summarize the variances that you computes in (1) above by showing the net overall favorable or unfavorable variances for the month. What impact did this figure have on the company's income statement? Show computations 2.Pick out the two most significant variances that you computed in (1) above. Explain tMs. Dunn possible causes of these variances.arrow_forward
- At the end of the year, when closing the books, what is the treatment for immaterial standard variance account bal-ances? What is the treatment for standard variance account balances that are material in amount?arrow_forwardUse the variance formulas to compute the following variances. Note: Indicate the effect of the first three variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance). Select "Positive" or "Negative" for the Fixed-overhead Volume variance.arrow_forwardWhich of the following is FALSE regarding variances? O A favorable variance, when it occurred, are debited to the related variance account. O Mathematically, an unfavorable variance has a positive value. O Favorable variances occur whenever actual prices or actual usage of inputs are lower than standard prices or standard usage. O A variance is the remaining portion after subtracting the standard cost from the actual cost. Next Previousarrow_forward
- Which of the following statements is true of performance reporting? A. Responsibility reports should focus on the person responsible for unfavorable variances, rather than information. B. Every variance, regardless of magnitude, must be investigated by the managers. C. Managers should not be held accountable for uncontrollable variances. D. Only unfavorable variances in the reports should be explained.arrow_forwardI need help with problems 1 a-b, and 2-a-c. Part of 1 b is cut off, to clarify it says that I need to solve for the "price variance" and the "spending variance." Thanks for the help in advance!arrow_forwardVariance analysis is an extremely important tool in accounting, so unfavourable variances must be taken very seriously by accountants and managers”. How would you respond to this statement? Make use of examples in your explanation - 150 words please :)arrow_forward
- Gauging the Favorableness of Variances When variances occur, they are described as being either favorable or unfavorable. When actual activity consumes more time or money than initially planned, an unfavorable variance exists. However, when actual activity consumes less time or money than initially planned, a favorable variance exists. Note that the terms favorable and unfavorable are used, rather than saying that a variance is good or bad, because until the cause of a variance is discovered, it is not clear whether a variance is either good or bad. Note: Use the minus sign to indicate negative values (when the budgeted amount is greater than the actual). If a company calculates that the actual cost for materials used was $4,800,000, and the amount budgeted for those materials was $3,400,000, the actual cost for materials used less the budgeted cost for materials used is $ This tells you that the actual cost at actual materials used is greater than -v the budgeted cost at actual hours…arrow_forwardGauging the Favorableness of Variances When variances occur, they are described as being either favorable or unfavorable. When actual activity consumes more time or money than initially planned, an unfavorable variance exists. However, when actual activity consumes less time or money than initially planned, a favorable variance exists. Note that the terms favorable and unfavorable are used, rather than saying that a variance is good or bad, because until the cause of a variance is discovered, it is not clear whether a variance is either good or bad. Note: Use the minus sign to indicate negative values (when the budgeted amount is greater than the actual). If a company calculates that the actual cost for the actual hours worked by employees was $4,300,000, and the amount budgeted for those hours actually worked was $4,800,000, the actual cost for hours worked less the budgeted cost for hours worked is $ 500,000 x. This tells you that the actual cost at actual hours worked is less than…arrow_forwardGauging the Favorableness of Variances When variances occur, they are described as being either favorable or unfavorable. When actual activity consumes more time or money than initially planned, an unfavorable variance exists. However, when actual activity consumes less time or money than initially planned, a favorable variance exists. Note that the terms favorable and unfavorable are used, rather than saying that a variance is good or bad, because until the cause of a variance is discovered, it is not clear whether a variance is either good or bad. Note: Use the minus sign to indicate negative values (when the budgeted amount is greater than the actual). If a company calculates that the actual cost for the actual hours worked by employees was $4,300,000, and the amount budgeted for those hours actually worked was $4,800,000, the actual cost for hours worked less the budgeted cost for hours worked is $ This tells you that the actual cost at actual hours worked is less than - v the…arrow_forward
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