Why is the direct materials price variance based on the quantity of materials purchased,but the direct materials quantity variance on the quantity of materials used?
A)Managers need to isolate variances and take corrective action as soon as possible.
B)Production managers are only interested in the quantity purchased.
C)It is a simpler process to calculate the quantity variance on what is purchased.
D)Managers are required by GAAP to isolate the price variance at the latest point possible.

Question

Quizplus · Accepted Answer

The direct materials price variance is based on the quantity of materials purchased because it is important to identify any price differences as soon as possible in order to take corrective actions. On the other hand, the direct materials quantity variance is based on the quantity of materials used because it reflects the efficient use of materials in the production process. Managers need to quickly identify any issues related to material price variances, while the quantity variance reflects the efficiency of the production process.

Why Is the Direct Materials Price Variance Based on the Quantity