ACCA Applied Skills · Performance Management · Standard costing
A manager is held responsible for a material usage variance that arose largely because a purchasing decision led to substandard material being bought at a lower price. Which statement best interprets the variances?
The adverse usage variance may be linked to the favourable price variance, so they should be investigated together. Cheaper substandard material saves on price but causes extra waste, so judging purchasing on price alone would be misleading.
- AThe adverse usage variance may be linked to the favourable price variance, so the two should be investigated togetherCorrect
- BThe usage variance is a planning variance and should be ignored
- CThe favourable price variance proves purchasing performed well overall
- DThe usage variance is uncontrollable and should be removed from reporting
Explanation
Variances can be interdependent: buying cheaper, lower-quality material gives a favourable price variance but more waste, causing an adverse usage variance. They should be assessed together. The other options ignore this link or wrongly label the variance as planning or uncontrollable.
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