The Following Information Is Provided by the Atlas Company: What

question 10

Multiple Choice

The following information is provided by the Atlas Company: What is the direct material price variance?
$$\begin{array} { | l | l | } \hline \text { Actual direct material cost } & \$ 20,000 \\\hline \text { Standard direct material cost } & \$ 24,000 \\\hline \text { Direct material usage variance } & \$ 3,000 \text { favorable }\\\hline\end{array}$$

• A)$1,000 favorable
• B)$1,000 unfavorable
• C)$5,000 unfavorable
• D)Not enough information is provided

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Definitions:

Absorption Costing

is an accounting method that includes all manufacturing costs (direct materials, direct labor, and both variable and fixed overhead) in the cost of a product.

Fixed Manufacturing Overhead

The set costs involved in the production process that do not change with the level of output, such as salaries and building leases.

Inventories

Items such as products, materials, and supplies held by a company for the purpose of resale or production.

Variable Costing

An accounting method that includes only variable production costs (materials, labor, and variable overhead) in the cost of goods sold, while fixed overhead costs are expensed in the period incurred.