What does a cost variance measure?
A) the difference between the cost the company pays and the cost its competitors pay
B) the change in costs over time
C) how well the business keeps unit costs of material and labor inputs within standards
D) the volume discounts companies receive when ordering direct materials in large quantities

Question

Quizplus · Accepted Answer

A cost variance measures how well the business keeps the unit costs of material and labor inputs within standards. It is a calculation of the difference between the actual cost and the budgeted or standard cost. It is used to monitor and control costs by identifying any deviations from the expected cost and taking corrective action if necessary. Option A is incorrect as cost variance measures the difference in costs within a company, not between competitors. Option B is incorrect as cost variance measures the difference in costs at a particular point in time, not over time. Option D is incorrect as volume discounts are a pricing strategy and not related to cost variance.

What Does a Cost Variance Measure