According to the concept of management by exception, which of the following variances should a manager investigate?

• A. Only variances that are significant or exceed a predetermined threshold
• B. Only variances that occur in direct materials costs
• C. Only favorable variances
• D. All variances, regardless of their size or significance

Answer: (A)

Verified step by step guidance

1. Understand the concept of 'management by exception,' which is a principle in managerial accounting that focuses on investigating only significant deviations from expected performance.
2. Recognize that the goal of management by exception is to prioritize efficiency by addressing variances that have a meaningful impact on the organization's financial performance.
3. Identify the types of variances mentioned in the problem: significant variances, variances in direct materials costs, favorable variances, and all variances regardless of size or significance.
4. Evaluate each option against the principle of management by exception. For example, significant variances align with the concept because they exceed a predetermined threshold and warrant investigation.
5. Conclude that the correct approach under management by exception is to investigate only variances that are significant or exceed a predetermined threshold, as this ensures focus on impactful deviations.