Discuss the following statement: "As long as the total variable overhead variance is small, the managers can be assured that actual activity is proceeding as planned. No further action is necessary."
While it may be reassuring for managers to see that the total variable overhead variance is small, it should not be the end of their efforts. The overall variable overhead variance is composed of many subvariances. These can be quite large, but if they are a mix of favorable and unfavorable variances, they will cancel each other out. This masks significant cost deviations within the firm. Managers should insist on a detailed listing of the subvariances so that outliers can be identified and dealt with.
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