The purchasing agent of an organization acquired some raw materials at a bargain

Question

The purchasing agent of an organization acquired some raw materials at a bargain price, even though she knew that their quality was lower than that of the materials customarily used. This action resulted in a favorable raw materials purchase price variance that might very well have been more than offset by:

a. an unfavorable raw materials usage variance

b. a favorable direct labor efficiency variance

c. an unfavorable variable overhead spending variance.

d. an unfavorable direct labor rate variance

Why?

Explanation / Answer

Hi,

Option A (an unfavorable raw materials usage variance) is correct.

This is so because use of poor quality material may increase wastage and hence more quantity of material may be required to meet the production needs.

Thanks.

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