Question

Lee was comparing the actual costs incurred for direct materials to the budgeted production costs for direct materials. After his comparison, he calculated the materials price variance and materials quantity variance. What may have prompted Lee to perform these variance calculations?

Answer 1

What might have prompted Lee to perform these variance calculations is that the actual production costs were much higher than the budgeted production costs. Since the total costs were much larger, he will try to determine what caused that cost increase:

• Did the price of materials was much higher than expected?
• Did they used much more materials than expected to manufacture their products?