Question

A favorable variance:

a. is an indication that the company is not operating in an optimal manner.
b. implies a positive result if quality control standards are met.
c. implies a positive result if standards are flexible.
d. means that standards are too loosely specified.

Answer 1

Correct option is (b)

Step-by-step explanation:

Variance is the difference between standard cost and actual cost. A favorable variance is when actual cost is less than the standard cost. It indicates positive results which means that all control standards are met.

Standard cost is the budgeted or expected cost that the company estimates. It stands as a benchmark. If actual cost is more than standard then there is unfavorable variance.