What does a favorable direct materials cost variance indicate?
A) The actual quantity of direct materials used was less than the standard quantity.
B) The actual cost of direct materials purchased was less than the standard cost of direct materials purchased.
C) The actual cost of direct materials purchased was greater than the standard cost of direct materials purchased.
D) The actual quantity of direct materials used was greater than the standard quantity.

Question

Quizplus · Accepted Answer

A favorable direct materials cost variance indicates that the actual cost of direct materials purchased was less than the standard cost of direct materials purchased. This can occur either because the actual quantity of direct materials used was less than the standard quantity (which would result in a favorable materials quantity variance) or because the actual cost per unit of direct materials purchased was less than the standard cost per unit (which would result in a favorable materials price variance). However, Option A and Option D are incorrect answers. The actual quantity of direct materials used being less than the standard quantity is not necessarily unfavorable, while the actual quantity of direct materials used being greater than the standard quantity will lead to an unfavorable variance.

What Does a Favorable Direct Materials Cost Variance Indicate