LST Corporation 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 LST. This reduces LST'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 material price variance
B) Favourable direct price variance
C) Unfavourable variable overhead spending variance
D) Unfavourable fixed overhead spending variance

Question

Quizplus · Accepted Answer

The change in the contract requiring a 24-hour notice from LST for raw material delivery may have increased the cost of the raw materials, resulting in an unfavourable direct material price variance.

LST Corporation Entered into a New Contract with One of Its