Lucie Corporation's purchasing manager obtained a special price on an aluminum alloy from a new supplier, resulting in a direct-material price variance of $9,500F. The alloy produced more waste than normal, as evidenced by a direct-material quantity variance of $2,000U, and was also difficult to use. This slowed worker efficiency, generating a $2,500U labor efficiency variance. To help remedy the situation, the production manager used senior line employees, which gave rise to a $900U labor rate variance. If overall product quality did not suffer, what variance amount is best used in judging the appropriateness of the purchasing manager's decision to acquire substandard material?

Question

Quizplus · Accepted Answer

The direct-material price variance is the best measure of the appropriateness of the purchasing manager's decision to acquire substandard material. This variance measures the difference between the actual cost of the material and the standard cost, and it is directly affected by the quality of the material. In this case, the direct-material price variance is $9,500F, which indicates that the substandard material cost $9,500 more than the standard material. This variance is a significant amount, and it suggests that the purchasing manager's decision to acquire substandard material was not appropriate.

Lucie Corporation's Purchasing Manager Obtained a Special Price on an Aluminum