ICAEW BIP · Chapter 9 · Question 10 of 13
A company reports a favourable material price variance and an adverse material usage variance. Which of the following is the most likely single explanation for both?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) The buyer bought cheaper, lower-quality material, which led to more wastage in production
Explanation
Lower-quality material is likely to be cheaper (favourable price variance) but to cause more waste or rejects (adverse usage variance). This shows how variances can be interdependent, so managers should look at them together. A price rise would cause an adverse price variance, and a loose usage standard would cause a favourable usage variance.
More Standard costing and variance analysis MCQs
- Q12A company bought 7,000 kg of material for £31,500. The material price variance was £2,100 adverse. What is the standard price per kg?
- Q13Which of the following is a factor in deciding whether a variance should be investigated?
- Q1A standard that assumes efficient but realistic operating conditions, with allowances for normal wastage, machine breakdowns and idle…
- Q2A company bought 8,400 kg of material for £36,960. The standard price is £4.50 per kg. What is the material price variance?
- Q3Output for the period was 2,000 units. The standard usage is 4 kg per unit at a standard price of £4.50 per kg. Actual usage was 8,400 kg…