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Variance

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Variance

  • This topic has 1 reply, 2 voices, and was last updated 2 years ago by John Moffat.
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  • November 25, 2022 at 8:15 am #672459
    James124
    Participant
    • Topics: 166
    • Replies: 138
    • ☆☆☆

    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. 🙂

    November 25, 2022 at 10:04 am #672476
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    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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