The purchase of poor quality materials may cause a favorable materials price variance and an unfavorable labor efficiency variance due to the extra effort required to work with inferior materials in the production process.

A. True
B. False

A. True

Explanation:

Material price variance is expressed as:

(Standard price - Actual Price) × Actual Quantity used

Material price variance depicts the variation in cost incurred while producing goods. It shows the difference between standard cost which should've been incurred and the actual cost that has been incurred.

Similarly, labor efficiency variance is represented as:

= (Standard hours for Actual Output - Actual hours) ×  Standard rate

This variance computes the payment in the form of wages paid to the laborers and measures the efficiency of labor w.r.t the hours they should've ideally taken to produce an output w.r.t the hours they actually took.

In the given case, purchase of poor quality variance will reduce the actual price in material price variance and thus lead to a favorable or positive result.

Similarly, with poor quality of material, the labor would be required to put in extra hours than standard projected hours and thus would increase the actual hours, leading to an unfavorable or negative variance.

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