Direct Materials Variances

Question 1

1A favorable materials price variance coupled with an unfavorable materials usage
variance most likely results from
A. Machine efficiency problems.
B. Product mix production changes.
C. The purchase and use of higher-than-standard quality materials.
D. The purchase of lower than standard quality materials

Answer 1

Answer (D) is correct.
A favorable materials price variance is the result of paying less than the standard price for materials.
An unfavorable materials usage variance is the result of using an excessive quantity of materials. If a purchasing manager were to buy substandard materials to achieve a favorable price variance, an
unfavorable quantity variance could result from using an excessive amount of poor quality materials.

Question 2

2A manufacturer planned to produce 5,000 units of its single product during November. The standard
specifications for one unit include ten pounds of materials at $.50 per pound. Actual production in November was
5,200 units. The accountant computed a favorable materials purchase price variance of $580 and an unfavorable
materials quantity variance of $320. Based on these variances, one could conclude that
A. More materials were purchased than were used.
B. More materials were used than were purchased.
C. The actual cost of materials was less than the standard cost.
D. The actual usage of materials was less than the standard allowed.

Answer 2

Answer (C) is correct.
A favorable price variance indicates that the materials were purchased at a price less than standard. The
unfavorable quantity variance indicates that the quantity of materials used for actual production
exceeded the standard quantity for the good units produced.

Question 3

3Under a standard cost system, the materials efficiency variances are the responsibility of
A. Production and industrial engineering.
B. Purchasing and industrial engineering.
C. Purchasing and sales.
D. Sales and industrial engineering.

Answer 3

Answer (A) is correct.
The materials efficiency variance is the difference between actual and standard quantities used in
production, times the standard price. An unfavorable materials efficiency variance is usually caused by
wastage, shrinkage, or theft. Thus, it may be the responsibility of the production department because
excess usage would occur while the materials are in that department. In addition, industrial engineering
may play a role because it is responsible for design of the production process.

Question 4

9A company planned to produce 3,000 units of its single product, Titactium, during November. The
standard specifications for one unit of Titactium include 6 pounds of materials at $.30 per pound. Actual production
in November was 3,100 units of Titactium. The accountant computed a favorable direct materials purchase price
variance of $380 and an unfavorable direct materials quantity variance of $120. Based on these variances, one could
conclude that
A. More materials were purchased than were used.
B. More materials were used than were purchased.
C. The actual cost of materials was less than the standard cost.
D. The actual usage of materials was less than the standard allowed.

Answer 4

Answer (C) is correct.
The direct materials purchase price variance may be isolated at the time of purchase or at the time of
transfer to production. It equals the actual quantity of materials purchased or transferred times the
difference between the standard and actual unit prices. Hence, a favorable direct materials purchase
price variance means that materials were purchased at a price less than the standard price

Question 5

10A purchasing manager was able to acquire a large quantity of direct materials from a new supplier
at a discounted price. The inventory supervisor is concerned because the warehouse has become crowded and some
things had to be rearranged. The vice president of production is concerned about the quality of the discounted
materials. However, the Engineering Department tested the new materials and indicated that they are of acceptable
quality. At the end of the month, the corporation experienced a favorable direct materials usage variance, a favorable
direct labor usage variance, and a favorable direct materials price variance. The usage variances were solely the
result of a higher yield from the new material. The favorable direct materials price variance is considered the
responsibility of the
A. Purchasing manager.
B. Inventory supervisor.
C. Vice president of production.
D. Engineering manager.

Answer 5

Answer (A) is correct.
A direct materials price variance is the actual quantity used times the difference between the standard
and actual prices. It is normally considered the responsibility of the purchasing manager because no
one else has an opportunity to influence the price. In this case, the purchasing manager obtained the
discount that led to the favorable price variance.

Question 6

11Price variances and efficiency variances can be key to the performance measurement within a
company. In evaluating the performance within a company, a materials efficiency variance can be caused by all of
the following except the
A. Performance of the workers using the material.
B. Actions of the purchasing department.
C. Design of the product.
D. Sales volume of the product.

Answer 6

Answer (D) is correct.
An unfavorable materials quantity or usage (efficiency) variance can be caused by a number of factors,
including waste, shrinkage, theft, poor performance by production workers, nonskilled workers, or the
purchase of below-standard-quality materials by the purchasing department. Changes in product design
can also affect the quantity of materials used. Sales volume of the product should not be a contributing
factor to a materials efficiency variance

Question 7

13Which one of the following variances is most controllable by the production control supervisor?
A. Materials price variance.
B. Materials usage variance.
C. Variable overhead spending variance.
D. Fixed overhead budget variance.

Answer 7

Answer (B) is correct.
The production control supervisor has the most control over the materials usage variance. The
materials usage variance measures the excess amount of materials used over the amount specified in
the standards. The materials usage (or materials quantity) variance, when unfavorable, is often
attributable to waste, shrinkage, or theft in the production areas. The excess usage occurs under the
supervision of the production department.

Question 8

16In a standard cost system, the investigation of an unfavorable materials usage variance should begin
with the
A. Production manager only.
B. Plant controller only.
C. Purchasing manager only.
D. Production manager or the purchasing manager.

Answer 8

Answer (D) is correct.
An unfavorable materials quantity variance is usually caused by waste, shrinkage, or theft.
Alternatively, an unfavorable variance could be attributable to the purchasing department’s not buying
the proper quality of materials in an attempt to achieve a favorable material price variance. Thus, either
the production manager or the purchasing manager could be responsible for a material usage variance.

Question 9

17Under a standard cost system, the materials price variances are usually the responsibility of the
A. Production manager.
B. Cost accounting manager.
C. Sales manager.
D. Purchasing manager.

Answer 9

Answer (D) is correct.
The materials price variance is the difference between the standard price and the actual price paid for
materials. This variance is usually the responsibility of the purchasing department. Thus, the
purchasing manager has an incentive to obtain the best price possible.

Question 10

18When items are transferred from stores to production, an accountant debits work-in-process and
credits materials accounts. During production, a materials quantity variance may occur. The materials quantity
variance is debited for an unfavorable variance and credited for a favorable variance. The intent of variance entries
is to provide
A. Accountability for materials lost during production.
B. A means of safeguarding assets in the custody of the system.
C. Compliance with GAAP.
D. Information for use in controlling the cost of production.

Answer 10

Answer (D) is correct.
One step in the control process is measurement of actual results against standards. For example, the
standard quantity of materials for a given output is established prior to production. If the actual
materials usage exceeds the standard, the variance is unfavorable and corrective action may be needed.

Question 11

19Which of the following is least likely to cause an unfavorable materials quantity (usage) variance?
A. Materials that do not meet specifications.
B. Machinery that has not been maintained properly.
C. Labor that possesses skills equal to those required by the standards.
D. Scheduling of substantial overtime.

Answer 11

Answer (C) is correct.
An efficiency, or usage, variance for materials occurs when usage differs from the standard.
Unfavorable variances occur when actual usage is greater than standard. Labor whose skill is
commensurate with materials usage standards should achieve standard materials usage; that is, little or
no variance should arise

Question 12

20Which department is typically responsible for a materials price variance?
A. Engineering.
B. Production.
C. Purchasing.
D. Sales.

Answer 12

Answer (C) is correct.
Responsibility for variances should bear some relationship to the decision and control processes used.
Materials price prices should be the responsibility of purchasing management.

Question 13

22A company uses a standard-costing system in relation to its manufacture of scarves. Each finished
scarf contains 1.5 yards of direct materials. However, a 25% direct materials spoilage, which is calculated based on
input quantities, occurs during the manufacturing process. The cost of the direct materials is $2.00 per yard. The
standard direct materials cost per unit of finished product is
A. $2.25
B. $3.00
C. $3.75
D. $4.00

Answer 13

Answer (D) is correct.
If 1.5 yards remain in each unit after spoilage of 25% of the direct materials input, the total per unit
input must have been 2 yards (1.5 ÷ 75%). The standard unit direct materials cost is therefore $4.00 (2
yards × $2).

Question 14

A manufacturer of radios purchases components from subcontractors for
assembly into complete radios. Each radio requires three units each of Part X, which has a
standard cost of $2.90 per unit. During June, the company had the following experience with
r espect to Part X:
Units
Purchases ($36,000) 12,000
Consumed in manufacturing 10,000
Radios manufactured 3,000
Question: 24Assuming that budgeted and actual radio production was the same, the amount that will be shown
on a static budget for Part X usage during the month of June is
A. $26,100
B. $27,000
C. $29,000
D. $36,000

Answer 14

Answer (A) is correct.
The 3,000 radios require three units each of Part X, a total of 9,000 units. At a standard unit cost of
$2.90, the 9,000 units will total $26,100.

Question 15

25A company has a raw material price variance that is unfavorable. An analysis of this variance
indicates that the company’s only available supplier of one of its raw materials unexpectedly raised the price of the
material. The action management should take regarding this situation should be to
A. Negatively evaluate the performance of the purchasing manager.
B. Negatively evaluate the performance of the production manager.
C. Change the raw material price standard.
D. Ask the production manager to lower the material usage standard to compensate for higher material costs.

Answer 15

Answer (C) is correct.
Since there is only one source for the raw material, the standard cost should be changed to reflect the
firm’s true situation

Question 16

26A company recently purchased 108,000 units of raw material for $583,200. Three units of raw
materials are budgeted for use in each finished good manufactured, with the raw material standard set at $16.50 for
each completed product. The company manufactured 32,700 finished units during the period just ended and used
99,200 units of raw material. If management is concerned about the timely reporting of variances in an effort to
improve cost control and bottom-line performance, the materials purchase price variance should be reported as
A. $6,050 unfavorable.
B. $9,920 favorable.
C. $10,800 unfavorable.
D. $10,800 favorable.

Answer 16

Answer (D) is correct.
The general formula for the purchase price variance is quantity purchased times (standard price minus
actual price). The standard price equals the materials charge per finished unit divided by the number of
inputs per finished unit ($16.50 ÷ 3 = $5.50), and the actual price equals the total amount paid for
materials purchased (not just used) divided by the number purchased ($583,200 ÷ 108,000 = $5.40).
The company’s purchase price variance is therefore calculated as follows: [108,000 × ($5.50 – $5.40)]
= $10,800 F.

Question 17

27The financial statements have just arrived showing a $3,000 loss on the new stadium job that was
budgeted to show a $6,000 profit. Actual and budget information relating to the materials for the job are as follows.
Actual Budget
Bricks – number of bundles 3,000 2,850
Bricks – cost per bundle $7.90 $8.00
Which one of the following is a correct statement regarding the stadium job?
A. The price variance was favorable by $285.
B. The price variance was favorable by $300.
C. The efficiency variance was unfavorable by $1,185.
D. The flexible budget variance was unfavorable by $900

Answer 17

Answer (B) is correct.
The direct materials price variance is defined as the actual quantity used in production times the
standard price minus the actual price. This calculation is [3,000 units × ($8.00 – $7.90)] = $300
favorable

Question 18

30A company has an unfavorable materials efficiency (usage) variance for a particular month. Which
one of the following is least likely to be the cause of this variance?
A. Inadequate training of the direct labor employees.
B. Poor performance of the shipping employees.
C. Poor design of the production process or product.
D. Poor quality of the raw materials

Answer 18

Answer (B) is correct.
Shipping employees send out finished products to customers. They are not involved in the production
process.

Question 19

31A corporation’s Marketing Department recently accepted a rush order for a nonstock item from a
valued customer. The Marketing Department filed the necessary paperwork with the Production Department, which
complained greatly about the lack of time to do the job the right way. Nevertheless, the Production Department
accepted the manufacturing commitment and filed the required paperwork with the Purchasing Department for the
needed raw materials. A purchasing clerk temporarily misplaced the paperwork. By the time the paperwork was
found, it was too late to order from the company’s regular supplier. A new supplier was located, and that vendor
quoted a very attractive price. The materials arrived and were rushed into production, bypassing the normal
inspection processes (as directed by the Production Department supervisor) to make up for lost time. Unfortunately,
the goods were of low quality and created considerable difficulty for the assembly-line personnel. Which of the
following best indicates the responsibility for the materials usage variance in this situation?
A. Purchasing.
B. Purchasing and Marketing.
C. Marketing and Production.
D. Purchasing, Marketing, and Production.

Answer 19

Answer (D) is correct.
All three departments bear responsibility for this fiasco. The Marketing Department should never have
accepted a rush order for an item not carried in regular stock without first determining whether the
Production Department would be able to fill the order on time and at an acceptable level of quality.
The Purchasing Department did not give a rush order the appropriate level of attention; the paperwork
should never have been in a position to be misplaced. The Production Supervisor should not have
given in to pressure from the Marketing Department to bypass the normal inspection process; this
simply led to more delays and lower quality.

Question 20

33During the month of May, a company experienced a significant unfavorable material efficiency
variance in the production of its single product at one of the company’s plants. Which one of the following reasons
would be least likely to explain why the unfavorable variance arose?
A. Inferior materials were purchased.
B. Actual production was lower than planned production.
C. Workers used were less skilled than expected.
D. Replacement production equipment had just been installed.

Answer 20

Answer (B) is correct.
An unfavorable material efficiency variance means that excess materials were used during production.
This might be due to buying inferior quality materials or using workers who were not as skilled in
working with the materials. Also, new equipment might damage materials during early production
runs.

Question 21

44In which of the following variances is the standard unit cost used in the calculations?
A. Both the direct materials usage variance and the direct materials price variance.
B. The direct materials usage variance but not the direct materials price variance
C. The direct labor price variance but not the direct labor efficiency variance.
D. The direct labor efficiency variance but not the direct labor rate variance.

Answer 21

Answer (A) is correct.
The materials price variance is calculated by multiplying the difference between actual price and
standard price by the actual units purchased. The materials usage variance is calculated by multiplying
the difference between the actual usage and the standard usage by the standard price. Thus, the
standard unit cost is used to compute both variances.