If a purchasing agent is able to negotiate a price lower than that set by the current budget by purchasing direct materials of similar quality,
A) a reduction in customer service costs will result.
B) the effect on the direct materials efficiency variance will be favourable.
C) the effect on the direct labour efficiency variance will be favourable.
D) the effect on the purchase price variance will be favourable.
E) the effect on the direct materials efficiency variance will be unfavourable.

Question

Quizplus · Accepted Answer

If the purchasing agent is able to negotiate a price lower than that set by the current budget, the effect on the purchase price variance will be favourable. This means that the company is paying less than expected for the direct materials, which will result in a positive purchase price variance. The other answer choices are not necessarily true or relevant to this scenario.

If a Purchasing Agent Is Able to Negotiate a Price