- This topic has 3 replies, 2 voices, and was last updated 9 months ago by
John Moffat.
John Moffat.-
Posts
-
tomasm
- Topics: 7
- Replies: 2
- ☆
Can you please kindly explain this. I have watched the lectures and it seemed I understood it. But this question is confusing
Which of the following statements is correct?
A
An adverse direct material cost variance will always be a combination of an adverse material price variance and an adverse material usage varianceB
An adverse direct material cost variance will always be a combination of an adverse material price variance and a favourable material usage varianceC
An adverse direct material cost variance can be a combination of a favourable material price variance and a favourable material usage varianceD
An adverse direct material cost variance can be a combination of a favourable material price variance and an adverse material usage varianceAnswer says D
Why not A or C ?
John Moffat
- Topics: 57
- Replies: 49583
- ☆☆☆☆☆
The total cost variance is always a combination of the price variance and the usage variance.
However C is wrong because if both are favourable then the total cannot end up being adverse.
A and B are wrong because although it can be the case that both are adverse (and so the total is adverse) or that one is adverse and one is favourable (but the adverse being bigger than the favourable so the total being adverse), it can be either of the two circumstances – it is not always A or always B.
tomasm
- Topics: 7
- Replies: 2
- ☆
But in A if both are adverse – the total can only be adverse isn’t it
It can never give a favorable answer ?John Moffat
- Topics: 57
- Replies: 49583
- ☆☆☆☆☆
That is true, but that is not what the statement says.
It says that it will always be a combination of two adverse variances. It will not always be that because it could be a combination of one adverse and one favourable.
tomasm
John Moffat- You must be logged in to reply to this topic.