ACCA Applied Skills · Performance Management · Standard costing
Which of the following is the most likely cause of an adverse material price variance combined with a favourable material usage variance?
Buying higher-quality material explains the pattern. It costs more per unit, giving an adverse price variance, but it produces less waste in production, so less material is used than standard and the usage variance is favourable.
- APurchase of higher-quality material that wastes less in productionCorrect
- BPurchase of cheaper, lower-quality material that increases waste
- CUse of an inefficient production process
- DOver-optimistic standard usage rates
Explanation
Paying more per kg (adverse price) for better-quality material can reduce scrap and waste, giving a favourable usage variance. Cheaper material would give a favourable price variance instead. Inefficient processes or loose standards would not explain an adverse price.
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