Question Description
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.) (Should be in the format of a memo)
- Does Cost of Goods Sold increase or decrease
OR
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