Which of the following statements regarding variances is/are true?
The actions that create a favourable direct material price variance
i. can result in an unfavourable direct material quantity variance
ii. are likely to create an unfavourable direct labour rate variance
iii. can result in an unfavourable direct labour efficiency variance
A) i
B) i and ii
C) i and iii
D) ii and iii

Question

Quizplus · Accepted Answer

i. is true because if a company negotiates a lower price for the raw material, it may encourage workers to use more of it, resulting in a higher quantity being used and an unfavourable direct material quantity variance.
ii. is false because a favourable direct material price variance does not affect the direct labour rate variance.
iii. is true because a lower raw material price may lead to more material being used, which would increase direct labour hours needed to complete the product, resulting in an unfavourable direct labour efficiency variance.

Which of the Following Statements Regarding Variances Is/are True