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B)The materials standard is likely out of date.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 should have been used.
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 the materials was lower than the expected cost. This could be due to factors such as negotiating a better price with suppliers or finding cheaper alternatives for the same quality of materials. Lower-quality materials (A) would actually result in an unfavorable variance, as they would likely lead to increased costs in terms of rework, scrap, and reduced quality of the final product. An outdated materials standard (B) would not necessarily lead to a favorable price variance, as the standard cost would still reflect the expected cost of materials. Similarly, using less material (D) would result in a favorable efficiency variance, but would not affect the price variance. Finally, while it is possible that a favorable price variance may be accompanied by an unfavorable efficiency variance (E), this is not necessarily the case as the two variances measure different aspects of the use of materials.

A Favorable Price Variance for Direct Materials Indicates That