A company's production department was experiencing a high defect rate on the assembly line,which was slowing down production and causing wastage of valuable direct materials.The production manager decided to purchase a higher grade of materials that would be more reliable,but he was worried that the cost of the new materials might negatively affect operating income.This would produce a(n)________.
A) unfavorable direct materials cost variance
B) favorable direct labor cost variance
C) favorable direct labor efficiency variance
D) unfavorable direct materials efficiency variance

Question

Quizplus · Accepted Answer

Purchasing a higher grade of materials may lead to an unfavorable direct materials cost variance, which could negatively affect operating income as the cost of the new materials may exceed the budgeted amount. Direct labor cost and efficiency variances relate to labor costs, not material costs.

A Company's Production Department Was Experiencing a High Defect Rate