A purchasing manager switches to a cheaper, lower-quality material. Which pattern of variances is most likely?
Answer and explanation
Correct answer: D. A favourable material price variance and an adverse material usage variance from higher wastage
- Step 1: Cheaper material gives a lower actual price, so the price variance is favourable.
- Step 2: Poorer quality material tends to cause more waste, so usage is adverse.
Answer
A favourable material price variance and an adverse material usage variance from higher wastage.
Why not the others: Cheaper material cannot give an adverse price variance. Poor quality is unlikely to improve usage. The price is lower than standard, so the price variance is not adverse.
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