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Variance mcq on MPV

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Variance mcq on MPV

  • This topic has 3 replies, 2 voices, and was last updated 4 years ago by John Moffat.
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  • August 5, 2020 at 8:56 pm #579375
    humai
    Participant
    • Topics: 757
    • Replies: 248
    • ☆☆☆☆☆

    A business is expanding rapidly and buying its materials in variety of countries in variety of currencies. It has exclusive supply delivery contract whereby same logistics expert make all delievries in to its warehouses on a cost plus basis. It pays all delivery charges on a per unit basis

    Which of following are valid explanations of adverse material price variance measured to include delivery costs as part of cost per kg delivered

    1) Exchange rate movements
    2) World wide increase in demand for material
    3) World oil price rise

    Sir all above are correct ans but can you please explain me that why these three are correct?

    August 6, 2020 at 8:53 am #579403
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    Because all three will affect the cost of the materials and that is what the materials price variance is measuring.

    Exchange rate movements are relevant because they are buying from various countries.

    Increase in demand in the world will push up prices.

    Oil price rises will increase the cost of delivery.

    August 6, 2020 at 7:01 pm #579468
    humai
    Participant
    • Topics: 757
    • Replies: 248
    • ☆☆☆☆☆

    But is not the demand inversely proportional to price as per law of demand? So increase in world wide demand of material should reduce the prices?

    August 6, 2020 at 10:17 pm #579481
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    What???

    Think of anything that you normally buy. Think maybe about buying flour. If the demand for flour goes up but the amount of flour produced stays the same then the price of flour will increase.

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