ACCA Applied Knowledge · Management Accounting · Standard costing system
A manager receives an adverse material price variance and an favourable material usage variance on the same product. Which of the following is the most likely linked explanation?
The most likely explanation is that higher quality, more expensive material was purchased, creating the adverse price variance while reducing waste and creating the favourable usage variance. Buying cheaper material would produce the opposite pattern, and higher output is already flexed into standard usage.
- ACheaper, lower quality material was bought, which then caused more waste
- BHigher quality material was purchased at a higher price, which reduced waste in productionCorrect
- CThe standard price was set too low and the standard usage was set too high
- DOutput was higher than budgeted, which increased the total material used
Explanation
Paying more than standard (adverse price) together with using less than standard (favourable usage) is consistent with buying better quality material that wastes less. Cheaper material would give a favourable price and adverse usage, the reverse of the pattern given. Higher output is allowed for by flexing the standard usage, so it does not create a usage variance.
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