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Dear sir please assist us in this question
Which of the following is a possible explanation of the variable cost variances?
A) A new cheap material was easier to work with .
B) A new cheap material was more difficult to work with .
C) A new expensive material was easier to work with .
D) A new expensive material resulted in less wastage .
The thing I can’t understand is how come B comes as the answer
Because
Those costs are related to volume or quantity is called variable expenditure. Which variable cost will be incurred for cheaper or expensive ingredients is responsible for this interrelated variances.
So then D should be the most suitable answer right ?
Please professor help us
We are sooo confused ..Are you sure that you have typed out the whole question (for example, was it a Section B question where the initial scenario gave information about the costs)?
Both material and labour are variables costs.
A and B would result in a favourable material variance because the material cost was lower.
C and D would result in an adverse material variance because the material cost was higher.A and C would result in a favourable labour variance because the material is easier to work with (and so they will take less time).
B would result in an averse labour variance because the material is harder to work with (and so they will take longer).
D would result in a favourable material variance because they would use less material (due to less wastage).However, which is the correct answer depends on what the variances actually were, and you have given no information about this.
The term ‘variable cost variances’ means all the variable cost variance – i.e. materials expenditure variance and materials usage variance, and labour rate of pay variance and labour efficiency variance. The expenditure/rate of pay variances do not relate to volume or quantity – they are looking at the material cost per kg and the labour rate per hour.
Have you watched my free lectures on variance analysis?
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