Part I

(1) When computing and analyzing factory overhead variances, why is it necessary to separate the fixed and variable components?

(2) How come it is not necessary to separate fixed and variable components when analyzing variances for direct materials and direct labor?

(3) Suppose a company had a favorable direct materials quantity variance. What account would be used to record the variance? Would it be debited or credited?

(4) Finally, suppose management reported the variance in question (3) above on an Income Statement similar to the one shown in Exhibit 12 on page 1097. Would this information be made public? Please explain your answer.