Question

Answer the following questions using the information below: Berman's Camera Shop has prepared the following flexible budget for September and is in the process of interpreting the variances. F denotes a favorable variance and U denotes an unfavorable variance. Flexible Variances Budget Price Efficiency Material A $40,000 $1,000F $3,000U Material B 60,000 500U 1,500F Direct labor 80,000 500U 2,500F The most likely explanation of the above variances for Material A is that:

Answer 1

The variances for Materials A can indicate that the business purchases a lower quality materials, therefore cheaper.

Step-by-step explanation:

The variances for Materials A can indicate that the business purchases a lower quality materials, therefore cheaper.

Which produce a favorable price variance because, this lower quality had a lower price per unit of material.

This lower quality makes the manufacturing process use more materials, generating an unfavorable quantity variance as, the the standard materials would use less quantity.