troy company budgeted $12 million for customer service costs, but actually spent only $10 million. which of…
troy company budgeted $12 million for customer service costs, but actually spent only $10 million. which of the following statements is the best course of action for management to take in this instance?\n\na. management will investigate this $2 million favorable variance to ensure that the cost savings do not reflect skimping on customer service.\nb. management will investigate this $2 million unfavorable variance to try to identify and correct the problem.\nc. because this $2 million variance is favorable, management does not need to investigate further.\nd. management should not investigate every major variance, especially an unfavorable variance.
Answer
Explanation:
Step1: Calculate the variance amount
$$ \text{Variance} = \text{Budgeted Cost} - \text{Actual Cost} = $12\text{ million} - $10\text{ million} = $2\text{ million} $$
Step2: Determine the variance type
Since the actual cost is less than the budgeted cost, the variance is considered favorable.
Step3: Evaluate management action
A large favorable variance in customer service may indicate efficiency or a reduction in service quality (skimping). Management must investigate to ensure long-term goals are met.
Answer:
A. Management will investigate this $2 million favorable variance to ensure that the cost savings do not reflect skimping on customer service.