A company's purchasing department negotiates all of the purchasing contracts for raw materials. Which variance is most useful in assessing the performance of the purchasing department?
A)Direct materials quantity variance
B)Direct materials price variance
C)Direct labor rate variance
D)Direct labor efficiency variance

Question

Quizplus · Accepted Answer

The direct materials price variance is the most useful variance in assessing the performance of the purchasing department because it reflects the difference between the actual price paid for raw materials and the standard price that was negotiated by the purchasing department. A favorable price variance indicates that the purchasing department was able to negotiate better prices for materials, while an unfavorable variance may indicate that the department needs to improve its negotiating skills or that market conditions have changed. The other variances listed relate to labor, not purchasing, and therefore would not be as relevant in assessing the performance of the purchasing department.

A Company's Purchasing Department Negotiates All of the Purchasing Contracts