A company produced 5,000 units and expected total material costs to be $25,000. However, actual material costs were $27,500. What is the material cost variance per unit?

Rationale

$0.50 unfavorable

The material cost variance per unit is calculated by taking the difference between actual costs and expected costs, then dividing by the number of units produced. In this case, the variance is $27,520 (actual) - $25,000 (expected) = $2,520, and dividing this by 5,000 units gives a variance of $0.50 unfavorable per unit.

A ($1.50 unfavorable) YOUR ANSWER

This option suggests a variance of $2.00 per unit, which would imply total unfavorable costs of $10,000 (5,000 units x $2.00), far exceeding the actual unfavorable variance of $2,520. This calculation is incorrect as it does not reflect the actual cost data provided.

B ($0.50 unfavorable) CORRECT

A $1.00 unfavorable variance per unit would indicate total unfavorable costs of $5,000 (5,000 units x $1.00). This misrepresents the actual variance, which is significantly higher at $2,520, thus making this option incorrect.

C ($1.00 unfavorable) YOUR ANSWER

This is the correct choice, as calculated. The unfavorable variance is $2,520, and when divided by the 5,000 units produced, results in a variance of $0.50 per unit. This correctly reflects the additional costs incurred beyond the expected total material costs.

D ($2.00 unfavorable) YOUR ANSWER

An unfavorable variance of $1.50 per unit would result in total unfavorable costs of $7,500 (5,000 units x $1.50). This figure does not align with the actual unfavorable variance of $2,520, making it an incorrect option.

Conclusion

The material cost variance per unit is a crucial metric for assessing production efficiency. In this scenario, the calculation shows a $0.50 unfavorable variance per unit, indicating that the company spent more on materials than anticipated. Understanding such variances helps organizations manage costs and improve their budgeting processes.

A company produced 5,000 units and expected total material costs to be $25,000. However, actual material costs were $27,500. What is the material cost variance per unit?

$0.50 unfavorable

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