LST 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) Unfavorable direct material price variance
B) Favorable direct price variance
C) Unfavorable variable overhead spending variance
D) Unfavorable fixed overhead spending variance

Question

Quizplus · Accepted Answer

With the new contract, the cost of raw materials delivered has increased, leading to an unfavorable direct material price variance. Although the new contract reduces LST's material handling costs, the increased cost of raw materials outweighs the cost savings, resulting in an increased variance.

LST Entered into a New Contract with One of Its