Management accounting uses variance analysis to explain what and why something happened in the cost of producing products. It is done by comparing actual outcomes to expected, or standard, costs. What is the expectation when the price of raw materials unexpectedly decreases below the standard price?
A) Unfavorable price variance
B) Favorable price variance
C) Unfavorable quantity variance
D) Favorable quantity variance

Question

Quizplus · Accepted Answer

When the price of raw materials unexpectedly decreases below the standard price, it results in a favorable price variance because the actual cost is less than what was expected or budgeted, indicating a cost-saving situation.

Management Accounting Uses Variance Analysis to Explain What and Why