Which variance is most useful in assessing the performance of a purchasing department?

The direct materials price variance is particularly useful in assessing the performance of a purchasing department because it directly measures how effectively the purchasing department is acquiring materials at the expected price. This variance reflects the difference between the actual price paid for materials and the standard price that was anticipated, multiplied by the quantity purchased.

A favorable direct materials price variance indicates that the purchasing department was able to negotiate lower prices or obtain discounts, thereby contributing positively to the organization’s cost management. Conversely, an unfavorable variance suggests that the purchasing department may have overpaid for materials or failed to obtain the best prices available, which can impact overall profitability.

This variance is specifically tied to the purchasing decisions made by the department, enabling management to evaluate purchasing performance directly based on their ability to control costs related to material purchases. In contrast, the other variances primarily relate to labor efficiency or production efficiency, which, while important, do not provide direct insights into the purchasing department's effectiveness.