• Explanation

Variance analysis assists management in maintaining control over production costs for material, labor, and overhead. For example, the material usage (ie, efficiency) variance is used to hold a factory foreman accountable for inefficient use of material. This variance is the difference between the total actual quantity used and the total standard quantity allowed, multiplied by the standard cost per unit.

Prior to calculating the variance, determine the formula inputs. When calculating the usage variance, the inputs are the total tons used (not purchased) and the price per ton of material.

The direct materials usage variance is $160,000 unfavorable ([2,200 − 2,000] × $800). More material was used than allowed, indicating that the material was used inefficiently. When actual usage exceeds allowed usage, the variance will be unfavorable.

(Choice B)  The amount of $180,000 is an incorrectly calculated variance that uses an actual cost per ton of $900 ($1,980,000 / 2,200 tons) multiplied by 200 tons (2,200 tons − 2,000 tons).

(Choice C) The amount of $200,000 is the 200-ton difference multiplied by 1,000 tons sold.

(Choice D) The amount of $220,000 [($900 − $800) × 2,200 tons] incorrectly uses the actual wood purchases of 2,200 tons instead of the standard 2,000 tons.

Things to remember:
The material quantity (ie, efficiency) variance examines whether material inputs are being used efficiently. It is the difference between total actual material used and total standard material allowed for the units produced multiplied by the standard cost per unit of material. When actual material exceeds standard material, an unfavorable variance is generated.