Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 16

Todco planned to produce 3,000 units of its single product, Teragram, during November. The standard specifications for one unit of Teragram include 6 pounds of material at $0.30 per pound. The firm uses JIT in all operations. Actual production in November was 3,100 units of Teragram. The accountant computed a $380 favorable materials purchase-price variance and a $120 unfavorable materials usage variance.

Required Which of the following conclusions do these variances best support?

1. More materials were purchased than were used.

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2. More materials were used than were purchased.

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3. The actual cost of materials was less than the standard cost.

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4. The actual usage of materials was less than the standard allowed.

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5. The actual cost and usage of materials were both less than standard.

Step 1 of 3

Material usage variance is the difference between the actual material usage at the budgeted price and the planned or budgeted material usage in production. Purchase price variance is the difference between the actual purchase price minus the budgeted purchase price multiplied by purchase quantity. F signifies that the result is favorable and U signifies that result is unfavorable.