The reason we use the words favorable and unfavorable when evaluating variances is made clear when we look at the closing of accounts. To see this, consider that:
- All variance accounts are closed at the end of each period (temporary accounts)
- A favorable cost variance is always a credit balance
- An unfavorable cost variance is always a debit balance
Write a one page memorandum to your instructor with three parts that answers the three following requirements. (Assume that variance accounts are closed to Cost of Goods Sold.)
- Does Cost of Goods Sold increase or decrease when closing a favorable variance? Does gross margin increase or decrease when a favorable variance is closed to Cost of Goods Sold? Explain.
- Does Cost of Goods Sold increase or decrease when closing an unfavorable variance? Does gross margin increase or decrease when an unfavorable variance is closed to Cost of Goods Sold? Explain.
- Explain the meaning of a favorable variance and an unfavorable variance.
Your response to the Case Study will be graded based upon the Case Study Rubric.
1.5 – Assignment: Research Paper Page 3 of 4 CriteriaRatingsPts (Excellent – A) Identifies and (Above-Average – B) (Average – C) Identifies and (Near-Failing – D) (Failing – F) Identifies understands all of the main Identifies and understands understands some of the Identifies and and understands very issues in the question.Insightful, most of the main issues in issues in the question. understands few of the little of the issues in the Identification and thorough analysis of all the the question. Thorough Superficial analysis of issues in question. question. No analysis of and Analysis of 25 pts issues. analysis of most of the some of the issues in the Incomplete analysis of the issues. the Main 25 pts issues. case. the issues. 17 pts Issues/Problem 23 pts 21 pts 19 pts (Excellent – A) Answers to (Above-Average – B) Answers (Average – C) (Near-Failing – D) (Failing – F) Does not research questions are clear to research questions present Answers to research Answers to research address the throughout. Connection with some irrelevant information questions are vague questions are unclear researchquestions. class and study material goes on topic etc., but very little; in places; some and/or confusing. Treatment is very Answers to well beyond the obvious treatment goes beyond irrelevant or Treatment is very superficial and says very Research 20 pts connections among ideas; obvious connections with distracting superficial; paper may be little. Questions demonstrates insight and original class and study material. information. well written but says 12 pts thinking. 18 pts 16 pts nothing. 20 pts 14 pts (Excellent – A) Uses a logical (Above-Average – B) (Average – C) May list ideas or (Near-Failing – D) May (Failing – F) Absent structure appropriate to Shows a logical arrange them randomly rather have random organization, of any kind of paper’s subject, purpose, progression of ideas and than using any evident logical lacking internal paragraph…