A manufacturer planned to use $82.00 of materials per unit produced, but in the most recent period it actually used $80.00 of material per unit produced. During this same period, the company planned to produce 1,200 units, but actually produced only 1,000 units. The flexible-budget variance for materials, to the nearest dollar, is:
A) $2,000 favorable.
B) Impossible to determine without additional information.
C) $14,000 unfavorable.
D) $16,400 unfavorable.
E) $2,400 unfavorable.

Question

Quizplus · Accepted Answer

The flexible-budget variance for materials is calculated as the difference between the actual cost and the flexible budget cost. The flexible budget cost is based on the actual production level at the planned cost per unit. Therefore, the flexible budget cost for materials is 1,000 units * $82.00/unit = $82,000. The actual cost is 1,000 units * $80.00/unit = $80,000. The variance is $82,000 - $80,000 = $2,000 favorable, because the actual cost was less than the planned cost.

A Manufacturer Planned to Use $82