The procurement manager was able to bring down the cost of direct materials by purchasing materials of a slightly lower grade quality than the company had used previously. The lower grade of materials, however, meant a higher defect rate on the assembly line, and higher wastage of materials during production, which in turn lowered operating income. This situation would have led to a(n):
A)favorable direct materials cost variance.
B)unfavorable direct labor cost variance.
C)unfavorable direct labor efficiency variance.
D)favorable direct materials efficiency variance.

Question

Quizplus · Accepted Answer

The procurement manager's action of purchasing lower-grade materials at a reduced cost would result in a favorable direct materials cost variance because the actual cost of materials is lower than the standard cost. However, this does not account for the negative impact on efficiency and quality.

The Procurement Manager Was Able to Bring Down the Cost