Which of the following statements regarding trade-offs among variances is true?
A) Managers generally do not need to consider trade-offs in variance analysis
B) Managers may sometimes make trade-offs between favorable and unfavorable variances
C) Unfavorable direct material price variances often lead to unfavorable direct labor efficiency variances
D) Favorable direct material price variances often lead to favorable direct material efficiency variances

Question

Quizplus · Accepted Answer

Managers may sometimes make trade-offs between favorable and unfavorable variances, depending on the strategic goals of the organization. For example, a manager may accept an unfavorable direct labor efficiency variance if the result is a favorable direct material price variance, as this trade-off may ultimately result in a lower overall cost of production. However, the relationship between direct material price variances and direct labor efficiency variances is not always predictable, and managers must take each situation into consideration individually. Therefore, options A, C, and D are incorrect.

Which of the Following Statements Regarding Trade-Offs Among Variances Is