Question

A purchasing manager had to purchase a greater quantity of material than was budgeted for production and paid the higher price for the purchase. Which of the following variances may be affected?

a.) material price variance

b.) both price and quanity variance

c.) material quantity variance

d.) neither varjances will be affected

Answer 1

Answer:

Option b: Both price & quantity variance

Explanation:

Material price variance = (Standard Price - Actual price) * Actual Quantity

So, when actual price spent is more than the standard price, the material price variance would be negative.

Material quantity variance = (Standard quantity - Actual Quantity) * Standard Price

So, when the actual quantity purchased is more than the quantity budgeted, the material quantity/usage variance would be negative.

In the given question, the greater quantity was purchased and at a higher price than budgeted, therefore, both the variances i.e. material price variance and material quantity variance would be affected.

Hence,

Option 'b' is correct and rest all are incorrect.

In case of any doubt, please feel free to comment.