2. The materials cost variance report for Nickols Inc. indicates a large favorable materials price variance and a significant unfavorable materials quantity variance. What might have caused these offsetting variances?

A favorable materials price variance is caused by the amount budgeted for material prices (standard price) being higher than the actual price of the materials. This can happen as a result of increased supply of materials in the market.

An unfavorable materials quantity variance arises when the actual amount of materials used surpasses the amount of materials that was budgeted (standard materials). This can happen due to wastage and inefficiency.

These two cancel each other out because the extra material that is to be used will be acquired at the surplus price that standard price exceeds actual price by.