Accounting · Variance Analysis
A manufacturing company plans to substitute its primary raw material next month with a lower-cost option from an alternative supplier. While the cost per unit is lower, the material is known to be of an inferior quality. What is the most likely indirect effect of this decision on the material usage and labour efficiency variances?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Material usage variance will be Favourable, and Labour efficiency variance will be Adverse.
- 2Material usage variance will be Favourable, and Labour efficiency variance will be Favourable.
- 3Material usage variance will be Adverse, and Labour efficiency variance will be Adverse.✓
- 4Material usage variance will be Adverse, and Labour efficiency variance will be Favourable.
Correct answer
Material usage variance will be Adverse, and Labour efficiency variance will be Adverse.
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