A favorable price variance for direct materials indicates that:
A) Lower-quality materials were purchased.
B) The materials standard is likely out of date.
C) A lower price than expected was paid for the materials.
D) Less material was used in production this period than was allowed.
E) There will most likely be an unfavorable materials efficiency (quantity) variance.

Question

Quizplus · Accepted Answer

A favorable price variance for direct materials means that the actual cost of materials was lower than the budgeted or standard cost. This could happen because a lower price than expected was paid for the materials, which is a positive outcome. A and B are not correct because lower-quality materials or an outdated standard would result in unfavorable variances. D is not correct since a favorable price variance does not necessarily mean less material was used. E is also incorrect because a favorable price variance and an unfavorable material efficiency variance would be contradictory.

A Favorable Price Variance for Direct Materials Indicates That