Question

Last year, our materials price variance was favorable; the materials quantity variance was unfavorable; and the labor efficiency variance was unfavorable. One likely explanation fitting this variance pattern is: O A. Labor costs were higher than expected OB. High quality materials were purchased C. Low quality materials were purchased tortas ware purchased OD. High quality materials were purchased but the labor was badly supervised Reset Selection

Answer 1

Answer: C

Price variance = (Std. price – Actual price) × Actual quantity of material consumed

Note: price variance is favorable, since actual price is smaller than standard price.

Quantity variance = (Std. quantity – Actual quantity consumed) × Std. price

Note: quantity variance is unfavorable, since actual quantity is higher than standard quantity.

Efficiency variance = (Std. hours – Actual hours) × Std. rate

Note: efficiency variance is unfavorable, since actual hours become higher than standard hours.

There was low quality materials, since price variance is favorable (specifically, actual price is lower). If it was high quality material, the actual price would have been higher.

Since the price was low, actual quantity purchased and consumption should have been high – this creates unfavorable quantity variance.

Labor efficiency fell down because of low quality materials; it indicates unfavorable variance.