1.Variance analysis is important to the management because:
Group of answer choices
It helps management determine the reasons that actual costs varied from budgeted costs.
It helps management determine which department operated most efficiently.
It helps management determine the bottleneck of the production line.
All of the answers are correct.
2. The Total Liabilities to Total Assets ratio helps lenders such as a bank to monitor a loan to prevent the borrower from
Group of answer choices
Investing more of their money in the company
Generating enough cash flow to be able to repay a loan
Taking out more loans and increasing their total liabilities
Buying more plant and equipment to grow their business
3.
Which of the following statements is false?
Group of answer choices
Actual sales exceeded budgeted sales indicating an favorable variance
Actual expenses exceeded budgeted expenses indicating an unfavorable variance
Variance means that performance fell short of expectations
Small variance probably indicate random factors at work.
4. A passive investor
Group of answer choices
Has no interest in the company in which he or she has invested
Is shy and unlikely to ask hard questions
Is not involved in the day to day operations of the company
Is an active manager in the company
Has access to the company's financial statements information, but must rely on the public financial statements' information
Variance analysis helps the management in understanding the reasons for variances. It helps in taking corrective action. It helps the management in understanding which department is doing well and which is not doing well. It helps the in understanding production bottle necks when certain variances appear like material efficiency or labor efficiency.
Total liabilities to Total Assets ratio indicates the proportion of liabilities to assets. The higher the ratio it is risk since leverage will be higher. Hence lenders monitor this ratio regularly so that there can be some limit in loans and increasing liabilities.
Variance need not always mean performance fell short of expectation. It can also mean performance exceeded the standard and department has done well. Purpose of variance analysis is to control the cost. Hence variance analysis can be positive or negative. It is only when variance is analysed actual reasons can be seen .
A passive investor is not involved in the day to day operations of the company. They let the management control the day to day working of the firm. They interfere only when it is needed.
1.Variance analysis is important to the management because: Group of answer choices It helps management determine...
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