Question

Which of the following statements about direct material variances are likely to be true?

Differences between the actual production level and budgeted (expected) production level is NOT a reason why direct materials quantity (or efficiency) variances arise.

A direct materials quantity (or efficiency) variance can arise due to factors outside the production manager's control

A direct materials quantity (or efficiency) variance will arise if the organisation manages to negotiate a better price for its materials compared to what it had expected when constructing the static budget Group of answer choices

Answer 1

Correct answer is option 1 (i.e. Differences between the actual production level and budgeted (expected) production level is NOT a reason why direct materials quantity (or efficiency) variances arise.)

Explanation:

Option 2 is wrong because the direct materials quantity variance will always arise due to factors within production manager's control.

Option 3 is also wrong because if organization manages to negotiate a better price for its material as compared to static budget, it will result in Favorable Direct material price variance , not direct materials quantity variance.

Option-1 is true because variation in actual production & budgeted production level will not result in direct material quantity variance because standard quantity will be adjusted with level of actual production.