Todco planned to produce 3,000 units of its single product, Teragram, during November. The standard specifications for one unit of Teragram include six pounds of material at $0.30 per pound. Actual production in November was 3,100 units of Teragram. The accountant computed a favorable materials purchase price variance of $380 and an unfavorable materials quantity variance of $120. Based on these variances, one could conclude that:

A. more materials were purchased than were used.

B. more materials were used than were purchased.

C. the actual cost of materials was less than the standard cost.

D. the actual usage of materials was less than the standard allowed.

Question

Business

Rosa Riddle

31 January, 19:10

Todco planned to produce 3,000 units of its single product, Teragram, during November. The standard specifications for one unit of Teragram include six pounds of material at $0.30 per pound. Actual production in November was 3,100 units of Teragram. The accountant computed a favorable materials purchase price variance of $380 and an unfavorable materials quantity variance of $120. Based on these variances, one could conclude that:

A. more materials were purchased than were used.

B. more materials were used than were purchased.

C. the actual cost of materials was less than the standard cost.

D. the actual usage of materials was less than the standard allowed.

+2

Answers (1)

Know the Answer?

Eric Cowan · Answer 1

The correct option is C, the actual cost of materials was less than the standard cost.

Explanation:

Standard cost is the guesstimate cost of a process, material or item in a manufacturing outfit which is compared to actual cost such that variances between both can be further investigated.

In this case, favorable material purchase price variance is $380, while unfavorable materials quantity variance of $120, which implies that the net effect is a favorable material purchase price variance of $260 ($380 minus $120).

Intuitively, the closet option to the net variance impact, is that actual cost of material was less than the standard cost.