A Favorable Materials Price Variance Coupled with an Unfavorable Material

question 58

Multiple Choice

A favorable materials price variance coupled with an unfavorable material usage variance would most likely result from:

• A) labor efficiency problems.
• B) machine efficiency problems.
• C) the purchase and use of higher than standard quality material.
• D) the purchase and use of lower than standard quality material.

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Definitions:

Common Size Analysis

A financial analysis technique that expresses each line item on a financial statement as a percentage of a base amount for easy comparison across periods or companies.

Trend Analysis

The practice of collecting information and attempting to spot a pattern or trend in the data, often used in financial analysis.

Vertical Analysis

A method of financial statement analysis in which each entry for each of the three major categories of accounts (assets, liabilities, and equities) in a balance sheet is represented as a proportion of the total account.

Prepaid Expenses

Assets representing payments made in advance for goods or services to be received in the future.