Gauging the Favorableness of Variances

When variances occur, they are described as being either favorable or unfavorable. When actual activity consumes more time or money than initially planned, an unfavorable variance exists. However, when actual activity consumes less time or money than initially planned, a favorable variance exists. Note that the terms favorable and unfavorable are used, rather than saying that a variance is good or bad, because until the cause of a variance is discovered, it is not clear whether a variance is either good or bad.

Note: Use the minus sign to indicate negative values (when the budgeted amount is greater than the actual).

If a company calculates that the actual cost for materials used was $4,500,000, and the amount budgeted for those materials was $3,700,000, the actual cost for materials used less the budgeted cost for materials used is $______. This tells you that the actual cost at actual materials used is less thangreater thanequal togreater than the budgeted cost at actual hours worked.

What type of variance is this?

Favorable direct materials price varianceUnfavorable direct materials price varianceNo varianceUnfavorable direct materials price variance

If a company calculates that the budgeted cost for actual materials used is $150,000, and the budgeted cost at the budgeted amount of materials to have been used is $190,000, the budgeted cost at actual materials used less the budgeted cost at budgeted materials to have been used is $________. This tells you that the actual materials used at budgeted cost is

less thangreater thanequal toless than

the budgeted materials used at budgeted cost.

What type of variance is this?

Favorable direct materials quantity varianceUnfavorable direct materials quantity varianceNo varianceFavorable direct materials quantity variance

Likewise, an increase in the amount spent or quantity used would decrease profits, so this would be an unfavorable variance.

Question Content Area

Standard Materials Cost

The controller at your shoemaking company has determined that under normal conditions, you will spend $8.30 per unit of materials, and it will take 2.6 units of material per pair of shoes. Given this information, calculate the standard cost of materials per pair of shoes. If require, round the standard cost per pair of shoes to the nearest cent.

Manufacturing Costs	Standard Price per Unit of Material	x	Standard Materials per Pair	=	Standard Cost per Pair
Direct Materials	$_________		_________		$_____

Question Content Area

Actual Materials Cost

During May, your shoemaking company incurred actual direct materials costs of $58,872 for 6,690 units of direct materials in the production of 2,150 pairs of shoes. Given this information, calculate the actual cost of materials per unit. If require, round the actual cost of materials per unit to the nearest cent.

Manufacturing Costs	Actual Total Cost of Materials	/	Actual Materials Used	=	Actual Cost per Unit
Direct Materials	$_____		______		$________-