Question

Which of the following would be a reasonable explanation for an unfavorable materials price variance?

Answer Yes or No for each possibility. Note this is just for an UNfavorable price variance

1. excessive spoilage (spoilage is when products needed to be discarded and rebuilt)

2. a discounted price offered by your normal supplier for a large order

3. use of more experienced workers than expected

4. an out-of date standard when inflation has pushed up materials costs

Answer 1

Ans:

1. Excessive spoilage - No, this will result in Unfavourable material usage variance.

2. Discounted Price by supplier- No, because positive material price variance will be reflected.

3. Use of experienced workers- No, as this will reflect favourable material usage variance.

4. Out of date standard- Yes. because as per standard lower material cost will be set without including inflation whereas actual costs will be after including inflation .It will reflect unfavourable material price variance.

Thanks