Global Company Makes a Product That Is Expected to Use

question 15

Multiple Choice

Global Company makes a product that is expected to use 2.2 pounds of material per unit of product.The material has a standard cost of $2 per pound.Global actually used 2.3 pounds of material per unit of product made in January.The actual cost of material was $1.95 per pound.Based on this information alone,the materials variances for the January production would be:

• A) Favorable for price and unfavorable for usage.
• B) Unfavorable for price and favorable for usage.
• C) Unfavorable for price and unfavorable for usage.
• D) Favorable for price and favorable for usage.

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Definitions:

Degree of Operating Leverage

A financial ratio that measures the sensitivity of a company's operating income to a change in its sales volume, signifying the impact of fixed versus variable costs.

Variable Expenses

Costs that vary directly with the level of production or sales volume, such as raw materials, direct labor, and sales commissions.

Fixed Expenses

Costs that remain constant for a set period of time, regardless of changes in the level of production or sales volume.

Break-Even Sales

The amount of revenue required to cover both the fixed and variable costs of a business, resulting in neither profit nor loss.