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Show What You Know: Cost Variance Analysis

Show What You Know: Cost Variance Analysis

$10$ of $13$

A $25\%$ decrease in the cost of raw materials caused a $25\%$ increase in the quantity of product being used per item manufactured. If the overall spending variance was $-0-($was right on budget$),$ what needs to be done in this situation?

A poorer quantity of product was purchased so there is more waste, but since the spending variance is $-0-,$ you could continue to use the poorer quality product, unless other budget items, such as direct labor are affected as well.

You need to go back to the more costly product immediately.

Inform your production department go review procedures and reduce waste.