A Particular Firm with Zero Material Inventory Purchased 30 000

question 5

Multiple Choice

A particular firm with zero material inventory purchased 30 000 kg of material and used 25 000 kg. For control purposes, it is recommended that firms calculate the material price variance at the time of purchase. The variance could alternatively be calculated at the time of usage of that material. Which of the following statements most correctly reflects a comparison of the two methods for this firm?

• A) Whether calculated on purchase or usage, both variances will be favourable.
• B) Whether calculated on purchase or usage, both variances will be unfavourable.
• C) The variance calculated on purchase will be larger than the variance calculated on usage, but in the same direction (favourable/unfavourable).
• D) The variance calculated on purchase will be smaller than the variance calculated on usage, but in the same direction (favourable/unfavourable).

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