Question

Resset Co. provides the following results of April’s operations: F indicates favorable and U indicates unfavorable. Applying the management by exception approach, which variances are of greatest concern? Why?

Direct materials price variance	$300 F
Direct materials quantity variance	3,000 U
Direct labor rate variance	100 U
Direct labor efficiency variance	2,200 F
Controllable overhead variance	400 U
Fixed overhead volume variance	500 F

Short answer

The following variances are ofgreatest concern:

• Direct labor efficiency variance,
• Direct materials quantity variance,
• Controllable overhead variance, and
• Fixed overhead volume variance.

Step-by-step solution

 Step 1: Meaning of Variances

Inmanagerial accounting, variance denotes the difference betweenstandard and actual outputs. Managers perform analysis to determine the variances for making necessary decisions and future planning.

Explanation of greatest concerned variances

From the above-mentioned variances, the following variances are of greatest concern according to themanagement by exception approach:

The management should consider the direct labor efficiency variance because it reflectshigh favorable outcomes that managers must analyze for future endeavors.

The direct material quantity variance is a considerable factor because it provides highly unfavorable outcomes that may lead to losses from business operations.

The controllable and fixed overhead volume variances should also be considered because they will help the managers resolve the discrepancies for achieving goals.