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Favorable raw material price variances occur when the actual costs of raw materials are lower than the budgeted or standard costs. This can be caused by factors such as a decrease in market prices due to increased supply or reduced demand, successful negotiation of better purchasing agreements, or improved production efficiencies that minimize waste. Additionally, bulk purchasing or long-term contracts at lower rates can also contribute to these favorable variances.
What else can I help you with?
Explain the meaning and relevance of interdependence of variances when reporting to managers?
The cause of one (adverse) variance may be wholly or partly explained by the cause of another (favourable) variance.Material price or material usage and labour efficiencyLabour rate and material usageSales price and sales volume
How do you calculate material price variances and what are the possible reasons for such variances?
Following are the causes of material price variance: 1.There could have been recent changes in purchase price of materials. 2.Price variance can be due to substituting raw materials different from the original material specification. 3.Price variance can be attributed to the non availability of cash discounts which was originally anticipated at the time of setting the price standards. 4.Changes in transportation costs and storekeeping costs can also be contributing factors to material price variance.
Causes material usage variance?
may be material price is higher than the stander ed price
Why material price variance is favourable?
A material price variance is considered favorable when the actual cost of materials purchased is lower than the budgeted or standard cost. This indicates that the company spent less on materials than anticipated, which can lead to increased profit margins or reduced production costs. Favorable variances can result from effective negotiation with suppliers, bulk purchasing discounts, or a decrease in market prices. Overall, this variance reflects efficient cost management and can positively impact the company's financial performance.
Why are separate price and quantity variances computed?
Price and quantity variances are computed respectively because different managers are usually responsible for buying and for using inputs.
What causes a DM Price Variance?
There are a number of reasons for causinf DM Price Variance. Adverse Price Variance 1) Demand > Supply (Low Supply, High Demand result in price to be material purchase to be more costly) 2) Change to a higher grade material quality. 3) Purchases made from oversea, exchange rate incurred 4) Purchases made in smaller quantity As for favourable DM price variance, explanation will be opposite of the above given.
What factors causes Budget Variance?
There are 7 variances associated with a budget ( which are generally calculated for controlling purposes) 1- Material Price variance 2- Material Quantity variance 3- Labor rate variance 4- Labor efficiency variance 5- Spending variance 6- Efficiency variance 7- Capacity variance
Are standards designed to evaluate price and quantity variances separately?
True
Why material price variance extracted at time of purchase?
Material price variance is calculated at the time of purchase to assess the difference between the actual cost of materials and the standard cost set by the organization. This variance helps in identifying discrepancies in pricing and allows for timely adjustments in budgeting and forecasting. Analyzing price variances at the point of purchase also aids in evaluating supplier performance and making informed procurement decisions. By monitoring these variances, companies can manage costs more effectively and improve overall financial performance.
What causes an increase in market supply?
a decrease of price in the cost of raw material.
Why are variances generally segregated in terms of a price variance and an efficiency variance?
Efficiency Varian materials and direct labor, the variances were recorded in specific general ledger accounts.
When computing standard cost variances the difference between actual and standard price multiplied by actual quantity yields what?
Price Variance
