Question

Interspace Merchandising anticipated selling 29,000 units of a major product and paying sales commissions of $6 per unit. Actual sales and sales commissions totaled 31,500 units and $182,700, respectively. If the company used a static budget for performance evaluations, Interstate would report a cost variance of:
A. $6,300U.
B. $6,300F.
C. $8,700U.
D. $8,700F.
E. some other amount not listed above.

Answer 1

Answer:

Cost variance = 8,700 U

so correct option is C. $8,700 U

Explanation:

given data

selling = 29,000 units

sales commissions = $6 per unit

Actual sales = 31,500 units

sales commissions = $182,700

to find out

cost variance

solution

we know that Material quantity variance is express as

Material quantity variance =  sales commissions × (Actual sales - selling )

Material quantity variance = $6 × (31,500 - 29,000)

Material quantity variance = =$15,000 U

and  

Material price variance =  $182700 - $31500  × $6

Material price variance = $6,300 F

so

Cost variance = $15,000 U - $6,300 F

Cost variance = 8,700 U

so correct option is C. $8,700 U