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Which of the following would help to explain an adverse direct material price variance?
(i) The material purchased was of a higher quality than standard.
(ii) A reduction in the level of purchases meant that expected bulk discounts were forgone.
(iii) The budgeted price per unit of direct material was unrealistically high.A All of them
B (i) and (ii) only
C (ii) and (iii) only
D (i) and (iii) onlyAnswer is B.
(In ii) I don’t understand even by reduction of purchases we are having adverse variance. We may had lost discount but still less units will cost less.Material price variances compare the actual price of the Kgs you buy and the standard price of the Kgs you buy. There is only a variance if the two prices are different, and it will be ad else if actual price/kg > standard price/kg.
Losing an expected bulk discount (factored into the standard price) will cause an adverse variance. It is true that the less you buy at the higher than standard price then the lower the variance, but it will still be adverse.
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