Question

The purchasing agent of an organization acquired some raw materials at a bargain price, even though she knew that their quality was lower than that of the materials customarily used. This action resulted in a favorable raw materials purchase price variance that might very well have been more than offset by:

Answer 1

Answer:

So a favorable material price variance might be more than offset by an adverse usage variance

Explanation:

Material price variance

A material price variance occurs where materials are purchased at a price either lower or higher than the standard price. A favourable variance is recorded where the actual total cost of materials of a given quantity is lower that the standard cost. While an adverse variance implies the opposite

Material usage variance

A material usage variance occurs when the standard quantity required to active a particular level of production is higher or lower than than the actual actual quantity used. A favorable variance would mean than less quantity of materials were  used than the standard to achieve a given output level. And an adverse variance would mean the opposite

Relationship between Usage variance and Price variance

Where savings are made from purchase of cheap and inferior quality materials these  might lead to an adverse usage variance by a greater value .This is so because  workers might need to use a larger quantity ( more than the standard required) of a low-quality materials to achieve production.

So a favourable material price variance might be more than offset by an adverse usage variance

Answer 2

Answer:

an unfavorable raw materials usage variance.

Explanation:

When materials are purchased at a price that is lower or higher than the normal purchase price, a material price variance is said to have occurred. The variance is favourable when the normal purchase price is higher than the current cost. On the other hand, an adverse variance is recorded when the opposite happens.

However, when one fails to use the standard quality needed in a production process, then a material variance occurs. The variance is favorable if less material is used and an adverse variance is simply the opposite.

Hence if low quality raw materials are used because they are cheap, the volume needed to achieve a certain standard may be higher than what is usually needed, and hence would offset any favorable price variance.