Medina saved $145 because the price of the leather was lower than expected, a favorable variance. A negative variance for a cost is a favorable variance because it means the actual cost was lower than the budgeted cost. Even though Medina used more leather than it should have for each football it manufactured, it saved $0.50 per square meter of leather actually used because the price was lower than expected. The variance of $(145) means that, because the price per square meter was lower than expected, the company’s cost for direct materials was $145 lower for the amount of materials it actually used than the standard cost for that quantity of materials. Adding these two variances together results in the total materials variance. Quantity variance $ 200 U Price variance (145) F Total Variance $ 55 U In total, Medina had a positive variance of $55, which is unfavorable, because the cost for the extra leather that was used was more than the savings on each square meter of leather used.
Posted on: Sat, 25 Oct 2014 10:07:30 +0000
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