Handley Manufacturing Company has prepared the following flexible budget for August and is in the process of interpreting the variances. F denotes a favorable variance and U denotes an unfavorable variance. Price Variances Efficiency Variances Material A $1,000 F $3,400 U Material B 200 U 1,800 F Direct manufacturing labor 600 U 2,300 FThe most likely explanation of the above variances for Material A is that:

Question

Handley Manufacturing Company has prepared the following flexible budget for August and is in the process of interpreting the variances. F denotes a favorable variance and U denotes an unfavorable variance. Price Variances Efficiency Variances Material A  $1,000 F  $3,400 U  Material B  200 U  1,800 F  Direct manufacturing labor 600 U  2,300 FThe most likely explanation of the above variances for Material A is that:

BlackTom AI · Accepted Answer

Price variance for Material A is $1,000 F while the efficiency (usage) variance is $3,400 U. Key concepts: material price variance = (Actual Price − Standard Price) × Actual Quantity purchased (AP − SP)×AQ; material efficiency (quantity) variance = (Actual Quantity used − Standard Quantity allowed) × Standard Price (AQ − SQ)×SP. A favorable price variance means actual price was below standard; an unfavorable efficiency variance means more material was used than the standard allowed for the output.

Step-by-step reasoning:
1. Interpret signs: $1,000 F → AP < SP so purchases cost less than expected. $3,400 U → AQ_used > SQ_allowed so usage exceeded standard, indicating waste or lower quality.
2. Demonstration with numbers: assume SP = $10 per unit. If AP = $9, then price variance = (9 − 10) × AQ = −1 × AQ = $1,000 F, so AQ = 1,000 units purchased. Efficiency variance = (AQ_used − SQ) × SP = $3,400 U. With SP = $10, AQ_used − SQ = 340 units (used 340 units more than allowed). This combination shows purchases were cheaper but more material was consumed than expected.
3. Causal interpretation: cheaper purchases (favorable price) coupled with excessive usage (unfavorable efficiency) commonly indicates lower-priced, lower-quality material or poor handling leading to higher scrap/waste. Thus the price aspect is that a lower price was paid.

Why the correct answer is correct:
- "a lower price than expected was paid for Material A" directly explains the $1,000 F price variance while allowing for a separate cause (quality or handling) for the $3,400 U efficiency variance.

Why other options are incorrect:
- "higher-quality raw materials were used" would likely produce a favorable efficiency variance (less usage), not the observed unfavorable one.
- "the company used a higher-priced supplier" contradicts the favorable price variance.
- "Material A used during September was $2,000 less than expected" would imply a favorable usage variance, not the $3,400 U shown.

Therefore, the correct answer is: a lower price than expected was paid for Material A. This matches the provided answer.

类似问题

When does an unfavourable variance occur?

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Which of the following budgeted expenses has a favourable variance?

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