Describe two possible causes of a favourable direct material price variance
Describe two possible causes of a favourable direct material price variance.
Direct material price variance is the difference between the price paid to purchase direct materials and the price which is shown in the prepared budget , multiplied by the total number of the units bought. These details are needed in order to analyze the costs incurred to manufacture the goods. Apart from direct material price variance, direct material yield is also a variance which is used in order to monitor direct materials. While price variances help to track the differences in price of raw materials, the material yield variances help to track the differences in the amount of raw materials used. The employees of the company calculate an approximate price to buy the direct materials for a particular quality, quantity and this price is called as the budgeted price. This framed budgeted price is invalid if direct material price variance is present.
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