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Which of the following statement(s) regarding the use of standard costs in rapidly changing environments is/are true?
(1) Variance analysis results will take into account important criteria such as customer satisfaction or quality of production.
(2) Achieving standards is suitable in most modern manufacturing environments.
A (1) only
B (2) only
C Neither (1) nor (2)
D Both (1) and (2)
Correct Answer is C.
I am unable to understand why second is wrong.
First is wrong because variance analysis is primarily on financial factors/perspective however even if somehow we are able compare non-financial so our customer preferences will change due to rapid changing environment. Is it correct?
Please also explain why second is wrong.
Thank you for investing your time. 🙂Variance analysis looks just at the costs and doesn’t take into account customer satisfaction etc., which is why 1 is wrong.
In most modern manufacturing environments, the business is continually hoping to improve and become more efficient (and so reduce costs) and so it starts to become silly to compare with a standard cost which would be assuming that they were trying to achieve just the same standard cost.
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