ExpertMedium2 marksMultiple Choice
ACCA · Question 29 · Standard costing
Section A
GlobalTex, a cross-border textile manufacturer, reported a significant Adverse Material Usage Variance for the month.
Which of the following are plausible causes for this adverse variance? (Select ALL that apply)
Section A
GlobalTex, a cross-border textile manufacturer, reported a significant Adverse Material Usage Variance for the month.
Which of the following are plausible causes for this adverse variance? (Select ALL that apply)
Answer options:
A.
Favorable exchange rate movements reducing the cost of imported cotton.
B.
Inferior quality cotton was purchased, leading to higher wastage.
C.
Poor machine maintenance causing fabric to tear during production.
D.
A sudden decrease in the global market price of raw cotton.
How to approach this question
Usage variance is about the QUANTITY of material used. Look for options that cause the factory to use more physical material than standard.
Full Answer
An adverse material usage variance means that more material was used than the standard allowance for the actual production level. This is typically caused by high scrap rates, wastage, or theft. Inferior quality materials (which break or fail quality checks) and poor machine maintenance (which damages materials) are classic causes of adverse usage variances. Price changes affect the price variance, not usage.
Common mistakes
Selecting price-related factors (exchange rates, market prices) for a usage (quantity) variance.
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