The manager of a manufacturing firm received the following information related t

Question

The manager of a manufacturing firm received the following information related to the last period’s direct materials and direct labor variances. Direct materials price variance Favorable Direct materials quantity variance Favorable Direct labor rate variance Unfavorable Direct labor efficiency variance Favorable a. Ignoring all other variances, what are possible reasons for a favorable direct materials price variance? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

?Purchase of lower quality materials at a higher price. unchecked

Inaccurate budgeted prices for materials. checked

Better negotiation on the part of purchasing agents. checked

? Purchase of lower quality materials at a lower price. unanswered

? Lower quantity discounts. unanswered

Higher quantity discounts. checked

I included the checked items but it appears I needed to add more I only received partial credit for this entry.

Explanation / Answer

You need to add this statement also;

“Purchase of lower quality materials at a lower price.”

Explanation;

As we know the formula of direct material price variance is as follow;

(Actual price – Standard price) * Actual quantity

So if there is favourable direct material price variance then it means that actual price of purchased quantity is lower in compare to standard price. Thus on the basis of this fact purchase of lower quantity materials at a lower price is also reason for favourable direct material price variance.

And other two unchecked options are just opposite to other options that why no need to select other two reamaining options.

These other remaining options that need not to be selceted are as follow;

·        Lower quantity discounts.

·        Purchase of lower quality materials at a higher price

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