S sharma 30 May 2020
An unfavorable price variance for direct material indicate?
a) That the purchasing manager purchased too much inventory.
b)That the supply in the market exceeded the demand of the material.
c)That the purchasing manager was unable to negotiate better prices during the period.
d) That production scheduling problems were a problem.
my answer is (a) is correct or not.
Himanshi Garg (Ca Article) 30 May 2020
Materials price variance is the result of deviation of actual price paid for materials from what has been set as standard.
If the actual price paid for materials is more than the standard price, an unfavorable materials price variance occurs. On the other hand, if the actual price paid for the materials is less than the standard price, a favorable materials price variance occurs.
Generally Purchase Department is responsible for the same.
So, as per me the answer would be (C) That the purchasing manager was unable to negotiate better prices during the period.
As per my opinion option (A) would be incorrect because Price Variance is calculated as per below formula:-
Direct materials price variance = (Actual quantity purchased × Actual rate) – (Actual quantity purchased × Standard rate).
So the change in quantity of Inventory would not lead to a Price Variance because we multiply the same amount of quantity with Std. Price and Actual Price. So the difference occur due to change in Price not because of the quantity.
Therefore, as per my opinion option (C) is correct.
yasaswi gomes 31 May 2020
If you look at the Material variance in a three pillar format, the favourable and adverse result is determined from Material quantity variance and Material price variance. When a manager purchases too much inventory (STD qty), the Quantity variance will be favourable resulting in a total favourable material variance when the price variance is favourable.
The answer A is not correct, because, when a manager purchases too much material, this has the quantitative quality to convert unfavourable price variance to Total material favourable variance. So, quantity is unimportant ; but difference between standard and actual price matters. Hence, price is important for a price variance to show the difference between budgeted values and actual values. Answer C is correct.