Question

A company had the following direct materials cost information:

Standard costs assigned: Direct materials standard cost (405,000 units @ $2/unit) $810,000

Actual costs: Direct Materials costs incurred (403,750 units @ $2.20/unit) $888,250

What was the cost variance?

a) $2,500 Favorable.
b) $78,250 Favorable
c) $78.250 Unfavorable
d) $80,750 Favorable.
e) $80,750 Unfavorable.

Answer 1

Option c) $78,250 unfavorable

Explanation:

The given information in the question :

Standard cost = $810,000

Actual cost = $888,250

Cost variance can be calculated as using the following formula :

Cost variance = standard cost - actual cost

= 810,000 - 888,250

= ($78,250) unfavorable

Favorable indicates how much under budget the project.

unfavorable indicates how much over budget the project.

Therefore, Option c) 78,250 unfavorable is the answer.