Figure 1
Max Company has developed the following standards for one of its products:
The following activities occurred during the month of October:
The company records materials price variances at the time of purchase.

-Refer to Figure 1. Max's materials usage variance would be
A) £40,000 unfavorable
B) £40,000 favorable
C) £4,800 unfavorable
D) £4,800 favorable

Question

Figure 1
Max Company has developed the following standards for one of its products:
The following activities occurred during the month of October:
  The company records materials price variances at the time of purchase.
 
-Refer to Figure 1. Max's materials usage variance would be
A) £40,000 unfavorable 
B) £40,000 favorable 
C) £4,800 unfavorable 
D) £4,800 favorable

Quizplus · Accepted Answer

The materials usage variance is calculated as the difference between the standard quantity of materials that should have been used for the actual production and the actual quantity used, multiplied by the standard cost per unit of material. If the actual quantity used is less than the standard quantity, the variance is favorable. If the actual quantity used is more than the standard quantity, the variance is unfavorable. In this case, without the specific details from Figure 1, the correct approach to determine the variance involves understanding this calculation method. Since the choice indicates a favorable variance, it suggests that less material was used than the standard amount expected for the actual production level, at a standard cost, resulting in a saving or favorable variance of £4,800.

Figure 1 Max Company Has Developed the Following Standards for One of One