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?

Question

Quizplus · Accepted Answer

The materials price variance measures the difference between the actual price paid for raw materials and the standard price that the company had set for those materials. Since the purchasing department is responsible for negotiating purchasing contracts for raw materials, the most useful variance for assessing their performance would be the materials price variance. A favorable materials price variance would indicate that the purchasing department negotiated good deals for raw materials, while an unfavorable variance would indicate that they may not have been successful in their negotiations.

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