Misc Ltd entered into a new contract with one of its raw material suppliers. The new contract required the supplier to deliver raw materials with a 24-hour notice from Misc. This reduces Misc's material handling costs, but has increased the cost of the raw materials delivered. Which of the following variances is most likely to result?
A) Unfavourable direct labour efficiency variance
B) Favourable direct material price variance
C) Unfavourable variable overhead spending variance
D) Unfavourable direct material price variance

Question

Quizplus · Accepted Answer

The new contract increases the cost of raw materials delivered, which directly leads to an unfavorable direct material price variance because the company is paying more per unit of raw material than before.

Misc Ltd Entered into a New Contract with One of Its