Abrasive Brothers, Inc., manufactures brake pads for automobiles. For April 2017, the company's static budget projected 5,000 units would be produced and sold at a variable cost of $6 per unit and total fixed costs of $12,000. The budgeted selling price was $18 per unit. Actual results for April were somewhat disappointing in that the company produced and sold only 4,200 units at an actual price of $17.50 per unit.
-The actual cost of goods sold for April amounted to $39,800. What would be the most meaningful variance to report for cost of goods sold for April?
A) $2,000 Favorable.
B) $2,600 Unfavorable.
C) $2,700 Favorable.
D) $2,100 Unfavorable.

Question

Abrasive Brothers, Inc., manufactures brake pads for automobiles. For April 2017, the company's static budget projected 5,000 units would be produced and sold at a variable cost of $6 per unit and total fixed costs of $12,000. The budgeted selling price was $18 per unit. Actual results for April were somewhat disappointing in that the company produced and sold only 4,200 units at an actual price of $17.50 per unit. 
-The actual cost of goods sold for April amounted to $39,800. What would be the most meaningful variance to report for cost of goods sold for April?
A) $2,000 Favorable.
B) $2,600 Unfavorable.
C) $2,700 Favorable.
D) $2,100 Unfavorable.

Quizplus · Accepted Answer

The most meaningful variance is the difference between the budgeted cost of goods sold and the actual cost of goods sold. The budgeted cost of goods sold for 4,200 units is (4,200 units * $6 variable cost) + $12,000 fixed costs = $37,200. The actual cost of goods sold was $39,800, resulting in a $2,600 unfavorable variance ($39,800 - $37,200).