Troy Company budgeted $12 million for customer service costs, but actually spent

Question

Troy Company budgeted $12 million for customer service costs, but actually spent only$10 miliion. Which of the following statements is the best course of action for management to take is this instance?

A. Management will investigat this $2 million favorable variance to ensure that the cost savings do not reflect skimping on customer service.

B. Because this $2 million variance is favorable, management does not need to investigate further.

C. Management will investigate this $2 million unfavorable variance to try to identify and correct the problem.

D. Management should not investigat every major variance, especially an unfavorable variance.

Explanation / Answer

The answer is option A.

Management will investigate this $2 million favorable variance to ensure that the cost savings do not reflect skimping on customer service.

A favorable variance, although a positive sign for any Company should not be completely ignored as it may be a result of compromising on the quality of the customer service being provided which would affect the Company in the long run.Thus it is very essential to keep a check on favorable as well as unfavorable variances.

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