A total variable cost variance (such as for direct materials) can be broken down into separate variances that evaluate:
A) Price (rate) and efficiency (quantity).
B) Units and cost.
C) Volume (output) and productivity.
D) Sales-volume versus sales-mix effects.
E) Efforts versus results.

Question

Quizplus · Accepted Answer

A total variable cost variance can be broken down into a price (rate) variance and an efficiency (quantity) variance. The price variance evaluates the difference between the actual price paid for direct materials and the budgeted price, while the efficiency variance evaluates the difference between the actual amount of direct materials used and the budgeted amount based on the actual level of output. Breaking down the variance into these two components can help managers identify the sources of cost differences and take appropriate corrective action.

A Total Variable Cost Variance (Such as for Direct Materials)