Question

which of the following can be a reason for a favorable price variance for direct materials? question 1 options: a) less amount of material used during production than planned for actual output b) an unexpected increase in the price of materials c) workers taking less time to produce the products d) a decrease in the price of materials due to an oversupply of materials

Answer 1

A favorable price variance for direct materials can result from option (d) a decrease in the price of materials due to an oversupply, which leads to lower market prices. Therefore, the correct option is D

Step-by-step explanation:

A favorable price variance for direct materials occurs when the actual cost of materials is less than what was expected or budgeted for. The options presented depict various scenarios that can impact material costs and usage. Specifically, the correct answer to why there might be a favorable price variance for direct materials is (d) a decrease in the price of materials due to an oversupply of materials.

This scenario is akin to the innocent explanation wherein market supply and demand determine the prices, not solely the cost of production. An oversupply of materials generally leads to lower market prices, contributing to a favorable variance.