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Which of the following statements is correct?
1.An adverse direct material cost variance will always be a combination of an adverse material price variance and an adverse material usage variance
2.An adverse direct material cost variance will always be a combination of an adverse material price variance and a favourable material usage variance
3.An adverse direct material cost variance can be a combination of a favourable material price variance and a favourable material usage variance
4.An adverse direct material cost variance can be a combination of a favourable material price
variance and an adverse material usage variance
Ans is 4 my question is why can 2 not be the answer since with adverse material price plus favourable material usage can also give adverse direct material cost then ,( could you please explain , ur feedback would be helpful sir )2 is not the answer, because although it certainly could be a combination of an adverse price variance and a favourable usage variance, the statement says ‘always’ and it is not always going to be that 🙂
It can occur because the usage and price variances are both adverse, or because one is adverse and one is favourable. So because it can be any of three things we cannot say that it is always going to be one of them.
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