Which factor would most strongly justify investigating a variance?
Answer and explanation
Correct answer: D. The adverse variance has grown in each of the last four periods
- Step 1: Variances are investigated when the likely benefit exceeds the cost.
- Step 2: A trend of growing adverse variances suggests a persistent problem that investigation might correct.
- Step 3: Small, uncontrollable or uneconomic variances are usually left.
Answer
The adverse variance has grown in each of the last four periods.
Why not the others: A small, favourable variance is not worth the cost of investigation. If investigation costs more than the benefit, it should not be carried out. Variances beyond control cannot be corrected by an investigation, so there is little to gain.
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