GEO Inc has an unfavorable direct materials price variance. A. Give two possible reasons for this variance. B. Using one of the above reasons, how could this particular variance affect one of the other variances (ex. direct materials usage, direct labor rate, direct labor efficiency)?
A. (pick two)
- unexpected increase in the price of direct materials.
- company could not take advantage of quantity discounts or purchase discounts.
- company decided to use a better quality of direct materials which come at a higher price.
- standard cost of materials was too low.
B. - Assuming the company decided to use a better quality of direct materials, the company could find there is less wastage of materials resulting in a favorable direct materials usage variance and/or a favorable direct labor efficiency variance.
- Assuming the company did not take advantage of quantity discounts, the company could have a problem with its management team and their supervisory skills. Poor management could, in turn, impact any of the other variances in an unfavorable way.
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