ACCA Applied Knowledge · Management Accounting · Standard costing system
Which statement best describes why a manager might investigate only variances exceeding a set threshold, such as 5% of standard?
Using a threshold such as 5% applies management by exception: managers investigate only significant deviations from standard, saving time and focusing on problems, rather than reviewing every small variance.
- AIt applies management by exception, focusing attention on significant deviationsCorrect
- BIt ensures all favourable variances are treated as adverse for prudence
- CIt removes the need for standards to be revised
- DIt guarantees that variances are controllable by the manager
Explanation
Thresholds support management by exception: only variances large enough to matter are investigated, saving time. They do not change how variances are classified, remove the need to revise standards, or make variances controllable.
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