Asked by Andrew Oriold on Jun 24, 2024
Verified
Which of the following statements regarding variances is/are true?
The actions that create a favourable direct material price variance
i. can result in an unfavourable direct material quantity variance
ii. are likely to create an unfavourable direct labour rate variance
iii. can result in an unfavourable direct labour efficiency variance
A) i
B) i and ii
C) i and iii
D) ii and iii
Direct Material Price Variance
The difference between the actual cost of direct materials and the expected (or standard) cost.
Direct Labour Rate Variance
The difference between the actual cost of direct labor and the expected (or standard) cost, based on the standard wages paid for that labor.
Direct Labour Efficiency Variance
A measure used in management accounting to assess the difference between the actual hours worked and the standard hours expected to produce a certain level of output.
- Understand the implications of favorable and unfavorable variances on cost control and performance evaluation.
Verified Answer
ii. is false because a favourable direct material price variance does not affect the direct labour rate variance.
iii. is true because a lower raw material price may lead to more material being used, which would increase direct labour hours needed to complete the product, resulting in an unfavourable direct labour efficiency variance.
Learning Objectives
- Understand the implications of favorable and unfavorable variances on cost control and performance evaluation.
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