Skip to content

ACCA Applied Knowledge · Management Accounting · Monitoring performance and reporting

Which of the following is the most likely explanation for a favourable material price variance combined with an adverse material usage variance?

The most likely explanation is buying cheaper, lower-quality material that caused more wastage. The lower price creates the favourable price variance, while extra scrap or spoilage means more material is used per unit, causing the adverse usage variance. The variances are therefore interrelated.

  1. APurchasing cheaper, lower-quality material that caused more wastageCorrect
  2. BBuying higher-quality material that reduced wastage
  3. CHigher-than-expected efficiency of the workforce
  4. DA rise in the market price of the material

Explanation

A favourable price variance means material cost less than standard; cheaper, poorer-quality material often leads to more scrap, giving an adverse usage variance. Higher quality would produce the opposite pattern, and a market price rise would give an adverse price variance.

Did you get it right without looking?

One question tells you little. A timed set on Monitoring performance and reporting shows your real accuracy, how long you take and where you lose marks.

Practise Monitoring performance and reportingFree diagnostic mock

More Monitoring performance and reporting questions