COST ACCOUNTING
STANDARD COSTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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We are paying less for our materials than expected but we are using more materials
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We are paying the same for our materials but we are using more than expected
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We are paying higher prices for our materials than expected
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We are using less material than expected but in total we are paying more than we should
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Detailed explanation-1: -If we are experiencing an adverse material usage variance we will be using more materials than expected. If we have a favourable material price variance we must actually be paying less per unit for the material. This scenario could be due to us buying poor quality, lower price materials.
Detailed explanation-2: -A favorable materials price variance coupled with an unfavorable material usage variance would MOST likely result from: the purchase of low quality materials. A labor efficiency variance resulting from the use of poor quality materials should be charged to: the purchasing agent.
Detailed explanation-3: -An adverse material usage variance indicates higher consumption of material during the period as compared with the standard usage. Reasons for adverse material usage variance include: Purchase of materials of lower quality than the standard (this will be reflected in a favorable material price variance).
Detailed explanation-4: -A material quantity variance refers to a deviation in the actual amount of material used from the standard estimated amount of material to be used in the production activities. It is a favorable variance if actual quantity of material used is less than standard estimated quantity of material to be used.