A favourable price variance for direct materials indicates that:
A)more material was used during production than planned for actual output.
B)a higher price than planned was paid for materials.
C)less material was used during production than planned for actual output.
D)a lower price than planned was paid for materials.

Question

Quizplus · Accepted Answer

A favourable price variance for direct materials means that the actual price paid for the materials was lower than the planned price. This could be due to various factors such as negotiations with suppliers, bulk purchases, or changes in market conditions. Option A indicates more material being used than planned which would result in an unfavorable usage variance. Option B indicates a higher price being paid which would result in an unfavorable price variance. Option C indicates less material being used than planned which could result in a favorable usage variance but not a favorable price variance.

A Favourable Price Variance for Direct Materials Indicates That