Question

Which of the following situations may lead to a favorable direct materials price variance?A) The purchasing manager was able to negotiate a lower purchase price for raw materials.B) A vendor shipped a greater quantity of raw materials than ordered.C) The purchasing manager paid a premium price for a higher quality of raw materials.D) Raw materials waste was substantially reduced in the factory.

Answer 1

Answer:

A) The purchasing manager was able to negotiate a lower purchase price for raw materials.

Explanation:

Direct Material Price Variance = (Standard Price - Actual Price) $\times$ Actual Quantity

This clearly shows that the variance can be positive when actual price is less than standard, in case actual price is more than standard even if the quantity is more variance will be unfavorable, therefore out of all the options provided correct option is

A) The purchasing manager was able to negotiate a lower purchase price for raw materials.